This presentation was made by Mitsuhiro Teraoka, Japan, at the 10th OECD-Asian Senior Budget Officials Annual Meeting held in Bangkok, Thailand, on 18-19 December 2014.

1. Recent Budgeting Developments in Japan
Mitsuhiro Teraoka
Director of Research Division
Budget Bureau
Ministry of Finance, JAPAN
18th December 2014
10th Meeting of ASIAN Senior Budget Officials

2. Japan’s current Policy Agenda
 The BOJ introduced Quantitative and Qualitative Monetary Easing (QQE) in April
2013 to achieve the price stability target of 2 % increase in CPI with a time
horizon of about two years.
 On October 31, 2014, the BOJ decided the measures comprising:
－Accelerating the pace of increase in the monetary base
(about 60-70 trillion → about 80 trillion)
－Increasing asset purchases (about 50 trillion → about 80 trillion)
－Extending the average remaining maturity of JGB purchases (about 7-10 years)
Achieving both Economic Revitalization and Fiscal Consolidation
1
⇒ Implementing “Abenomics” comprising the following 3 arrows:
(i) Bold Monetary Policy, (ii) Flexible Fiscal Policy, and (iii) Growth
strategy to promote structural reform and private investment.
First arrow: Bold Monetary Policy

3. Japan’s current Policy Agenda
 Economic Stimulus Package
－In order to address downside risks to the economy, a fiscal stimulus package
(FY2013 supplementary budget) amounts to 5.5 trillion has been implemented.
－Further, under the current economic situation, a new economic stimulus
package will be prepared by the end of this year.
 Fiscal Consolidation
－Consumption tax rate increased (5% to 8%) in April, 2014. The second increase
will be in April, 2017.
－Maintaining the fiscal consolidation target of a primary surplus by FY2020.
－Concrete fiscal consolidation plan for achieving the FY2020 target will be
prepared by next summer.
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Second arrow: Flexible Fiscal Policy

4. Japan’s current Policy Agenda
 Japan Revitalization Strategy 2013, Revision of Japan Revitalization
Strategy 2014 is currently being implemented which includes:
－Corporate tax reduction
・Down to the twenties in several years, first phase reduction will be from
FY2015.
－Enhancing Corporate governance:
・Newly established Japan’s Stewardship Code adopted by 175
institutional investors.
・Currently discussing the formulation of Japan’s Corporate Governance
Code.
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Third arrow: Growth Strategy

5. Recent Budgeting Developments
1. Establishing highly independent councils for economic and fiscal
policy
⇒ Producing the followings:
－Long-term economic and fiscal projections
－Constructive proposals for basic policies for the economic and
fiscal management as well as fiscal consolidation
2. Introducing accrual-basis accounting
⇒ Producing the ‘Financial Statements of the Government’
in addition to the ‘Settlement of Revenue and Expenditure’
3. Introducing performance budgeting
⇒ Utilizing PDCA cycle in the budget formulation process
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Enhancing the Transparency, Efficiency and Effectiveness of budget

6. Enhancing the Transparency 1
Enhancing the Transparency of Macroeconomic and Fiscal Outlook
Council on Economic and Fiscal Policy (Cabinet Office)
 Advisory body to the Prime Minister on substantive matter for economic and
fiscal policy
 Providing a medium-term fiscal framework
 Producing long-term economic and fiscal projections twice a year
⇒ Based on Economic revival case (2% real GDP growth) and Reference case (1% growth)
Fiscal System Council (Ministry of Finance)
 Advisory body to the Minister of Finance on fiscal policy issues
 Around 30 members such as academics, business leaders, and lawyers, etc.
 Providing constructive proposals for fiscal consolidation including expenditure
cuts
 Ensuring the independence from the government
⇒ Both councils’ members include academics, business leaders and experts
 Enhancing the credibility of macroeconomic outlook and the effectiveness of
fiscal consolidation measures 5

7. Enhancing the Transparency 2
Settlement of Revenue and Expenditure
 Prepared based on the Public Finance Act
 Cash-basis accounting and single-entry accounting utilized
⇒ Satisfy the requirement by the Constitution of Japan
Article 83. The power to administer national finances shall be exercised as the Diet shall determine
Financial Statements of the Government
 Since FY2003, voluntarily prepared in addition to the above Settlement
 Accrual-basis accounting and double-entry accounting introduced
⇒ Clearly disclose the actual stock and flow of government account
but……
 Issues for accrual-basis accounting
 Less certainty, Less objectivity, Less transparency in some cases……
⇒ Additional cost incurred in terms of preparing the statement
Enhancing the Government’s Financial Accountability
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⇒ By utilizing accrual-basis accounting to additionally produce
‘Financial Statements of the Government’.

8. Enhancing the Efficiency and Effectiveness
Implementing Performance Budgeting
Plan: Planning the budget
Do: Executing the budget
Check: Evaluating the budget execution
Action: Making use of evaluation results for budgetary
planning
Plan
Do
Check
Action
National Audit
 Conducted by the Board of Audit (Independent of
the Cabinet and the Diet)
 Based on the Constitution and the Board of Audit
Act
 Constantly auditing and supervising the public
accounts from the aspects of accuracy, regularity,
economy, efficiency and effectiveness, etc.
 209.6 billion reflected in FY2014 budget 7
⇒ By utilizing the PDCA cycle in the budget formulation process.

9. Enhancing the Efficiency and Effectiveness
Policy Evaluation
(since FY2002)
 Conducted by Ministry of Internal Affairs and
Communications & Line ministries
 Ministries set organizational policy goals and
assess achievements
 Based on the Government Policy Evaluations Act
 Evaluating policies from the standpoints of
necessity, efficiency, effectiveness, etc.
 27.0 billion reflected in FY2014 budget
Budget Execution
Surveys
(since FY2002)
 Conducted by Ministry of Finance
 Conducting the survey of selected policy programs
by officials of the Budget Bureau of MOF including
budget examiners
 26.3 billion reflected in FY2014 budget
Administrative
Programs Review
(since FY2010)
 Conducted by Cabinet Secretariat & Line ministries
 Based on the Cabinet decision
 Conducting comprehensive review of all policy
programs (over 5,000 programs)
 280 billion reflected in FY2015 budget request
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10. The Government aims to improve the primary balance of the
General Account at least by approximately 4 trillion yen both
in FY2014 and 2015 (”Medium-Term Fiscal Plan” (Approved
by the Cabinet on August 8, 2013))
FY2014～
2015
The Government aims to halve the primary deficit of the
national and local governments to GDP ratio (▲3.3％） by
FY2015 from the ratio in FY2010 (▲6.6％)
FY2015
The Government aims to achieve a primary surplus by FY2020FY2020
The Government will seek to steadily reduce the public debt
to GDP ratio
Thereafter
→ In the FY2014 budget, primary balance is improved by 5.2 trillion
yen , more than targeted in the “Medium-Term Fiscal Plan”
Fiscal Consolidation Targets
9
Reference 1

11. -6.6
-6.2
-5.1
-3.2
-2.4
-1.8
-2.7 -2.9
-12.0
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
(%)
●:Economic Revival Case (3% Nominal GDP growth, 2% Real GDP growth)
◆:Reference Case (2% Nominal GDP growth, 1% Real GDP growth)
▲:PBTargetofCentralandLocalGovernments
Primary Surplus
-3.3
(FY)
Source: Cabinet Office
※ This projection assumes that the second consumption tax increase is to be on October 2015.
Primary Balance of the Central and Local Governments
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Reference 2
(Ratio to nominal GDP)