Japan’s Primary Balance Target: Fiscal Reality or a Path to Public Hardship?

Introduction

In debates over Japan’s fiscal policy, the Primary Balance (PB) surplus target has become a constant refrain.

But does achieving a PB surplus truly strengthen the economy?

A close look at the data suggests otherwise: the PB surplus goal risks functioning as a policy of public hardship, rather than sustainable reform.

Japan’s Debt-to-GDP Ratio: What the Numbers Reveal

Japan’s government debt ratio has risen dramatically since the 1990s:

• 1994: ~56% (postwar low)

• 2010: Surpassed 200%

• 2021: Peak at ~225.8%

• 2024 year-end: 216.2%

• 2025 forecast: ~230%

Source: CEIC, Trading Economics, World Bank

This trajectory reflects a structural problem: the denominator (GDP) has stagnated while the numerator (debt) has expanded.

The Reality of the Primary Balance

The Primary Balance excludes interest payments from fiscal accounts.

Japan’s Ministry of Finance has long promoted the PB surplus goal, but the data tell another story:

• 2023 PB ratio: –1.815% (deficit)

• Japan has achieved a PB surplus only briefly since the 1990s

• Current projections suggest a surplus by FY2026, but credibility remains low

In short, the PB surplus target has remained largely unachieved.

The Mathematics of the Debt Ratio

The debt-to-GDP ratio can be expressed simply:

Debt-to-GDP Ratio = Government Debt ÷ Nominal GDP

• Without growth in nominal GDP, the ratio cannot decline

• PB surplus can restrain debt growth, but alone is insufficient

• During deflationary years, PB improvement did not reduce the ratio

Conclusion: GDP growth—not austerity—is decisive.

Sectoral Balances: Why PB Surplus Means Household Hardship

Macro accounting requires the balance of three sectors: government, private, and external.

A government surplus implies:

• Government surplus → Private sector deficit

• Higher taxes & spending cuts → Lower disposable income

• Decline in consumption & investment → Deflationary pressure

Indeed, Japan’s austerity policies in the late 1990s–2000s worsened deflation and low growth.

Data Insight: PB and Debt

Analysis by the St. Louis Fed (2025) shows that cumulative PB deficits align closely with Japan’s debt-to-GDP ratio. This confirms:

• Persistent PB deficits raise debt ratios

• But forcing PB surplus risks draining private savings, weakening demand

Conclusion: PB Surplus Is Not the Goal

• Japan’s debt-to-GDP ratio remains above 200% (the highest globally)

• The PB is still in deficit (–1.8% in 2023)

• Without GDP growth, the debt ratio cannot sustainably decline

• Pursuing PB surplus risks functioning as a “policy of public hardship”

Therefore, Japan’s fiscal objective should not be PB surplus itself, but rather sustainable economic growth and price stability that naturally reduce the debt ratio.