The document provides an overview of Japan's fiscal policy as of December 2018, detailing the government's expenditure, revenue sources, and bond issues. It highlights the challenges posed by an aging population, forecasts for social security expenses, and the goal of achieving a surplus in the primary balance by FY2025. Additionally, it emphasizes the need for economic revitalization and productivity enhancements through various reforms and investments.

1. Japan’s Fiscal Policy: A Brief Update
MINISTRY OF FINANCE, JAPAN
December 13, 2018

2. 2.1 3.5 4.5 4.3
6.3 7.2 5.9 7.0 6.7 6.4 6.0 5.0
2.5 1.0
0.2
0.8 2.0
9.2 8.5
16.9
24.3
21.9 20.9
25.8
28.7
26.8
23.5
21.1 19.3
26.2
36.9
34.7 34.4 36.0
33.8
31.9
28.4 29.1
26.3 27.6
3.2
3.7
5.0 6.3
7.1 7.0
7.0
7.0 6.8 6.4 6.3
6.2
6.9
6.2 6.4 6.3 6.7
9.5
16.2
12.3
16.4
10.7
9.9
17.0
13.2
11.1
9.1
9.1
6.7 8.7
7.8
6.4
6.0
7.0
15.0
7.6 8.4
11.4
7.0 6.6
6.5
8.9
7.3 6.1
13.8
15.7
17.3
21.9
23.7
26.9
29.0
30.5
32.4
34.9
38.2
41.9
46.8
50.8
54.9
60.1 59.8
54.4 54.1
51.0 51.9 52.1
53.9
49.4
47.2
50.7
47.9
43.8 43.3
45.6
49.1 49.1
51.0
44.3
38.7
41.5 42.8
43.9
47.0
54.0
56.3 55.5
58.8 59.1
20.9
24.5
29.1
34.1
38.8
43.4
46.9 47.2
50.6 51.5
53.0 53.6
57.7
61.5
65.9
69.3 70.5 70.5
75.1
73.6
75.9
78.8 78.5
84.4
89.0 89.3
84.8 83.7 82.4
84.9 85.5
81.4 81.8
84.7
101.0
95.3
100.7
97.1
100.2
98.8 98.2 97.5 98.1 97.7
5.3
7.2
9.6
10.7
13.5 14.2
12.9 14.0 13.5 12.8
12.3
11.3
9.4
7.2 6.6 6.3 6.7
9.5
16.2
13.2
18.4
19.9
18.5
34.0
37.5
33.0
30.0
35.0 35.3 35.5
31.3
27.5
25.4
33.2
52.0
42.3 42.8
47.5
40.9
38.5
34.9
38.0
33.6 33.7
0
20
40
60
80
100
120
75 80 85 90 95 00 05 10 15
(trillion yen)
(FY)
Total Expenditure
Tax revenue
Construction Bond Issues
Special Deficit-Financing Bond Issues
Asset
Bubble
Global Financial
Crisis
Central Government General Account :Tax Revenue, Expenditure and Bond Issues
(Note) FY1975 - FY2017: Settled Figures; FY2018: Based on Draft Budget
2.13.54.54.36.37.25.97.06.76.46.05.02.51.00.2 0.82.09.28.516.924.321.920.925.828.726.823.521.119.326.236.934.734.436.033.831.928.429.128.33.23.75.06.37.17.07.07.06.86.46.36.26.96.26.46.36.79.516.212.316.410.79.917.013.211.19.19.16.78.77.86.46.07.0
15.0
7.68.411.47.06.66.58.96.1
13.815.717.321.923.726.929.030.532.434.938.241.946.850.854.960.159.854.454.151.051.952.153.949.447.250.747.943.843.345.649.149.151.0
44.338.741.542.843.947.054.0
56.3
55.5
57.7
20.924.5
29.134.138.8
43.446.947.250.651.553.053.657.761.565.969.370.570.575.173.675.978.878.584.489.089.384.883.782.484.985.581.481.8
84.7
101.0
95.3
100.797.1100.2
98.898.297.597.5
5.37.29.610.713.514.212.914.013.512.812.311.39.47.26.66.36.7
9.516.213.218.419.918.5
34.037.533.030.035.035.335.531.327.525.433.2
52.0
42.342.847.5
40.938.534.9
38.034.4
0
20
40
60
80
100
75 80 85 90 95200005 10 15
（trillio
n…
（FY）
Construction Bond Issues
Special Deficit-Financing Bond Issues
１

3. Food Supply
Energy
Economic Assistance
Former Military Personnel Pensions
Promotion of SMEs
Miscellaneous
Contingency Reserves
Tax and
Stamp
Revenues
59,079.0
60.5%
Income Tax
19,020.0
19.5%
Corporation
Tax
12,167.0
12.5%
Other
Revenues
4,941.6
5.1%
Government
Bond
issues
33,692.2
34.5%
Consumption Tax
17,558.0
18.0%
Others
10,334.0
10.6%
General Account
Total Revenues
97,712.8
（100.0%）
Special Deficit-
Financing
Bonds
27,598.2
28.2%
Construction
Bonds
6,094.0
6.2%
Social Security
32,973.2
33.7%
Local Allocation
Tax Grants, etc.
15,515.0
15.9%
Public
Works
5,978.9
6.1%
Education
And Science
5,364.6
5.5%
National
Defense
5,191.1
5.3%
Others
9,387.9
9.6%
Redemption of the
National Debt
14,274.5
14.6%
Interest
Payments
9,027.5
9.2%
National
Debt Service
23,302.0
23.8%
Primary
Expenses
74,410.8
76.2%
General Account
Total Expenditures
97,712.8
(100.0%)
General Account Expenditure General Account Revenue
992.4 (1.0%)
918.6 (0.9%)
508.9 (0.5%)
250.4 (0.3%)
177.1 (0.2%)
6,190.4 (6.3%)
350.0 (0.4%)
(Unit : bn yen)
General Expenditure* : 58,895.8(60.3%)
(*Primary Expenses –Local Allocation Tax Grants, etc.)
(Note1) Figures may not add up to the totals due to rounding.
(Note2) Social security related expenditures account for 56.0% of the
general expenditure.
FY2018 Budget: General Account Expenditure and Revenue Items
2

4. Central Government: Outstanding Stock of Debt
Governing law Description
Construction Bonds The Public Finance Law Bonds only for financing public work projects.
Special Deficit-Financing
Bonds
The Law on Issuance of Public Bonds for Fiscal
Management
To finance the gap between current (non-investment)
expenditures and tax revenues for
Reconstruction Bonds The Law on Securing Financial Resources Necessary for
Reconstruction from the Great East Japan Earthquake
Bonds for funding the reconstruction from the Great
East Japan Earthquake projects.
1/ Excluding FILP bonds.
(Note) FY1965 - FY2017: Settled Figures; FY2018: Based on Budget
1/
2 5
10 15 21
28 33 40 47 53 59 64 65 65 64 65 64 63 61 64 67 77 83
108
134
158
176
199
231
258
280 288
305
321
356
390
411
445
477
506
534
555
579
604
13 17 22 28
35
42
49
56
63
69
75 81 87 91 97 102 108 116
131
142
158
168
175
187
197
209
216
222
226
241
247 243 237 225
238
246
248
250
258
260
266
268
269
273
0
0
11
10
9
8
6
7
5
6
0 1 2 2 2 3 4 6 8 10 15 22 32 43
56
71
82
96
110
122
134 145 152 157 161 166 172 178
193
207
225
245
258
295
332
368
392
421
457
499
527 532 541 546
594
636
670
705
744
774
805
831
853
883
(%)
156%
0
20
40
60
80
100
120
140
160
0
50
100
150
200
250
300
350
400
450
500
550
600
650
700
750
800
850
900
950
65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
(trillion yen)
(FY)
Construction Bonds
Special Deficit-Financing Bonds
Dept-to-GDP ratio(%):RHS
3

5. 0
10
20
30
40
1 11 21 31 41 51 61 71
Population Aging and Budget Structure
1991:
13%
2018:
28%
2050:
38%
2018
Proportion of Population aged 65+
(%)
Source: National Institute of Population and Social Security Research “Japanese Future Demographic Projection “ (Apr. 2017)
1991
(trillion yen)
Expenditure, FY1991
Social Security
33.0
(6.0%)
42.1
(8.9%)
Public Works,
Education etc.
40.4
(7.4%)
National
Debt Service
23.3
(4.2%)
12.2
(2.6%)
16.0
(3.4%)
+ 7.3+ 20.8- 0.7
*Figures in the parentheses are in GDP terms.
Total: + 27.4
Expenditure, FY2018 Draft Budget (trillion yen)
4

6. 0 1 2 3
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3
0
10
20
30
40
50
60
70
80
90
100
• In 2025 the first baby boomers (born in 1947-49) will become 75 years old and over (“late-stage elderly citizens”). It is
estimated that the benefits regarding medical and long-term care are going to increase considerably.
Demographic Challenges
2018
Total population 126.2 million
2025
Total population 122.5 million
Aged 20-64: 55% Aged 20-64: 54%
Aged 19 and under: 17% Aged 19 and under: 16%
2035
Total population 115.2 million
Aged 20-64: 52%
Aged 19 and under: 15%
65 years old:
75 years old:
20 years old:
(Note) The second baby boomers are those who were born in 1971-74.
(Source) National Institute of Population and Social Security Research “Japanese Future Demographic Projection (April 2017)”
First baby boomers Second baby boomers
Aged 65-74 :14%
Aged 65-74: 12% Aged 65-74: 13%
Aged 75 and over :14% Aged 75 and over : 18% Aged 75 and over: 20%
5

7. 56.7trillion yen
（10.1％）
59.9trillion yen
（9.3％）
73.2trillion yen
（9.3％）
39.2trillion yen
（7.0％）
47.4～47.8
trillion yen
（7.3～7.4％）
66.7～68.5
trillion yen
（8.4～8.7％）
10.7trillion yen
（1.9％）
15.3trillion yen
（2.4％）
25.8trillion yen
（3.3％）
14.6 trillion yen
（2.6％）
17.7trillion yen
（2.7％）
22.5trillion yen
（2.9％）
2018 2025 2040
GDP
1.22 times
GDP
1.14 times
GDP 564.3 trillion yen GDP 645.6 trillion yen GDP 790.6 trillion yen
（Source）Cabinet secretariat, Cabinet Office , Ministry of Finance, Ministry of Health, Labor and Welfare
Pension
1.1 times
Medical care
1.2 times
Long-term care
1.4 times
121.3 trillion yen
（21.5％）
140.2～140.6 trillion yen
（21.7～21.8％）
Others
Long-term care
Medical care
Pension
Long-term care
1.7 times
Medical care
1.4 times
Pension
1.2 times
188.2～190.0 trillion yen
（23.8～24.0％）
Outlook of the Expense of Social Security
6

8. Achievement of the
virtuous economic cycle
Capital
investment
Wage
Corporate
profits
Consumption
* Cooperation among
labor, management, and
the government
* Raising minimum wages
* Support R&D and capital
investments
* Tax system to spur wage
hikes and productivity
* Expansion of business
succession tax system
Productivity
* Shifting to social
security system
for all generations
Supply System
Innovation
• Investments that dramatically
boost productivity
• Innovations for the fourth
industrial revolution
 Capital investments and
investments in human
resources toward
boosting productivity
Human Resources
Development
Revolution
 Shifting to social security
system for all generations
 Realizing a society in
which all citizens are
dynamically engaged
• Reducing expenses for
higher education
• Making preschool education
effectively free
• Promote the Plan for Raising
Children with Peace of Mind
• Raising wages for childcare
and long-term care workers
• Reforms of universities
• Recurrent education
Overcoming deflation/
Achieving price stability target at 2%
• The BOJ, together with the government, aims for overcoming
deflation as early as possible.
• The BOJ aims at achieving price stability target at 2%.
Sustainable economic
growth
• Achieving 600 trillion yen
economy
Achievement of fiscal
consolidation targets
Strengthen the
potential growth
Achieving Japan’s Economic Revitalization and Fiscal Consolidation
Eliminate concerns
over the future
Basic Policy2018
(June.15, 2018 Cabinet Decision)
• Aim to realize a surplus
in the primary balance
for the national and local
governments by FY2025,
and simultaneously aim
for a stable reduction in
the debt-to-GDP ratio.
• Securing sustainability
of social security system
7

9. By FY2025
At the same
time
Achieve a primary surplus of the national and local governments
Fiscal consolidation target
Mechanisms to integrate fiscal consolidation target and annual budget
formulation for FY 2019 to FY2021
Measures to realize the plan
Social security
Expenditure
The progress will be reviewed at the midpoint of the new Plan, or FY2021; thereafter the
outcome will be reflected in the subsequent reforms of expenditures and revenues towards
the achievement of a primary surplus by FY2025.
【Benchmarks for managing the progress】
・Primary deficit to GDP ratio：around 1.5% ・Public debt to GDP ratio：in the low 180%-range
・Fiscal deficit to GDP ratio：at 3% or below
Non-Social security
Expenditure
Contain the increase within the one corresponding to the increase due to population
aging
Expenditures of the
local government
Steadily reduce the public debt to GDP ratio
Continue the efforts of expenditure reforms thus far in the Abe Cabinet
The total amount of the general revenue shall be maintained substantially at the same
level as in the FY2018 Fiscal Plan of Local Governments, and not below
Main points of the New Plan to Advance Economic and Fiscal Revitalization
(Cabinet Decision in June 15, 2018) (Summary Version)
8

10. Main points of the New Plan to Advance Economic and Fiscal Revitalization
in the Basic Policies 2018 (Cabinet Decision in June 15, 2018)
Fiscal consolidation target
 It is imperative to shore up the social security system before the Baby boomers begin to turn into 75 years old and
ensure the path to fiscal consolidation before all of them become 75 years old or over.
 In this respect, the fiscal consolidation target is to achieve a primary surplus of the central and local governments
by FY2025; and at the same time steadily reduce the public debt to GDP ratio.
Mechanisms to integrate fiscal consolidation target and annual budget formulation for FY 2019 to FY2021
Firmly maintain the principle of “no fiscal consolidation without economic revitalization” and
accelerate and expand the three pillar-reforms of “overcoming deflation/economic
revitalization”, “expenditure reforms,” and “revenue reforms.”
Social security expenditure
 Contain the increase within the one corresponding to the increase due to population aging.*
 An increase in the expenditure associated with the consumption tax hike (e.g., policies designated in the New Economic
Policy Package) is to be separately considered.
 The social security expenditure is expected to rapidly increase after FY2022, as the Baby boomers begin to turn
into 75 years old—reforms beyond FY2022 are to be comprehensively considered reflecting this aging factor and
taking into account factors including shrinking population, economic and price developments, and circumstances
surrounding social security.
* The increase due to population aging is composed of a fluctuation associated with a demographic change and a variation owing to
the “macroeconomic slide” mechanism of the public pension system. The former reflects an expected increase in the number of the
elderly in respective years, and the latter reflects an actual result. The government will continue the efforts of expenditure reforms on
this basis, as in the past three years.
9

11.  With a view to advancing a comprehensive discussion and carrying out necessary measures towards the steady
establishment of the “social security model for of all generations” within the period of FY2019 to FY2021, the
government will conduct a review of progress focusing on social security reform in FY2020; compile policies to be
comprehensively and intensively implemented in the social security area—including the balance of benefit and
burden—in the basic policies; and embody those policies as early as possible.
 The progress of the Integrated Economic and Fiscal Reforms will be reviewed at the midpoint of the new Plan, or
FY2021; thereafter the outcome will be reflected in the subsequent reforms of expenditures and revenues towards
the achievement of a primary surplus by FY2025.
Measures to realize the plan
Mechanisms to integrate fiscal consolidation target and annual budget formulation for FY 2019 to FY2021 (cont.)
（Guiding principle in the social security area）
 The priority during the three-year period is to compile policies to be comprehensively and intensively
implemented, in light of aging and declining population and sophistication of medical care, and implement
these policies within the period, including the formulation of roadmaps and legislation.
Non-social security expenditure
 Continue the efforts of expenditure reforms thus far in the Abe Cabinet.
Expenditures of the local government
 In line with the efforts of the central government, the total amount of the general revenue shall be maintained
substantially at the same level as in the FY2018 Fiscal Plan of Local Governments, and not below.
 In case a permanent revenue increase is secured through a systemic reform in order to address a rise in truly
needed fiscal demand, that is to be considered in implementing expenditure reforms.
Main points of New Economic and Fiscal Consolidation Plan in the Basic Policies 2018
(June 15, 2018 Cabinet Decision)
10

12. ‐ 6.3%
- 2.9%
- 2.8%
- 2.3%
- 1.5%
- 1.4%
- 0.3%
- 0.0%
0.3%
- 1.5% - 1.5%
- 1.3%
- 1.1%
- 7%
- 6%
- 5%
- 4%
- 3%
- 2%
- 1%
0%
1%
●
●
●
Mid-Term Target :
－1.5%
Target:
Primary Surplus
Economic and Fiscal Projections for Medium- to Long-term Analysis (Cabinet Office)
Primary Balance
(Central and Local governments)
(% of GDP)
Projected Primary Balance
(July 9, 2018)
(%)
Fiscal Year Primary Balance (in trillion yen) in GDP terms (%) Note
2018
Economic Growth
Achieved Case
-15.7 -2.8
Assess the progress of fiscal reform and consider additional
expenditure and/or revenue measures as necessary
2025
Economic Growth
Achieved Case
-2.4 -0.3
Target: Primary Surplus
Baseline Case -8.1 -1.3
Economic Growth Achieved Case
Baseline Case
（FY）
Fiscal Balance
(Central and Local governments)
Outstanding Debt ratio to nominal GDP
(Central and Local governments)
187.6%
180.3%
157.1%
183.8% 179.8%
130%
140%
150%
160%
170%
180%
190%
200%
(% of GDP)
（FY）
(%)
Mid-Term Target :
in the low 180%-range
●
●
Economic Growth Achieved Case
Baseline Case
●
●
Economic Growth Achieved Case
Baseline Case
-8.0%
- 4.2%
- 4.3%
- 2.5%
- 2.2% - 1.6%
-3.4%
- 2.5%
- 2.3%
- 2.8%
-9%
-8%
-7%
-6%
-5%
-4%
-3%
-2%
-1%
0%
（FY）
(% of GDP)(%)
Mid-Term Target :
3.0%
11

13. Macroeconomic Scenarios
Scenario Assumptions Average Growth Rate (FY2020-2027)
Economic Growth
Achieved Case
The impact of the "Three Arrows“ will be emerging moderately
in accordance with past economic performance.
Nominal GDP 3.3%; Real GDP 1.9%
Baseline Case Current trend growth continues. Nominal GDP 1.7%; Real GDP 1.2%
Assumptions
FY2019
Expenditure reforms and current wage/price dynamics are taken into consideration
: assumed to increase by half of the 2019 CPI rate
FY2020 onwards
General expenditure 1/ (excluding social security): Increase by CPI rate
Social security expenditure: Increase due to estimated population aging
Expanded with the consumption tax hike (October, 2019).The estimated 5 trillion yen in revenue from the 2% consumption tax rate
hike will be split between the social programs including alleviation of education burden, child-rearing support and securing of long-
term care works, etc. 2/ and the fiscal reconstruction 3/ on 50-50 basis approximately.
1/ Primary expenditure of central government, except Local Government Tax Grant.
2/ “Etc.” means the social security enhancement measures that were planned to be implemented at the time of consumption tax rate hike to 10%, including
the pensioners support benefits(around 1.1 trillion yen).
3/ Reduction of debt to be imposed on the future generation and increase in expenditure regarding four social security expenses accompanied with
consumption tax rate hike to 10%.
Key Fiscal Assumptions
Economic and Fiscal Projections for Medium- to Long-term Analysis (Cabinet Office)
(July 9, 2018)
12