Red deficit reappears! Japan's economic stimulus plan shatters 28-year budget balance vision.

Just under a month after Japanese Prime Minister Sanae Takaichi announced that the country would achieve its first basic fiscal surplus in 28 years, the latest official estimate data shows that the government's recent economic stimulus plan has derailed this trajectory. The latest medium- to long-term economic outlook report released by the Japanese Cabinet Office on Thursday shows that in the new fiscal year starting in April, the basic fiscal balance, excluding the cost of public debt interest, is expected to record a deficit of about 800 billion yen (approximately $5.1 billion), accounting for 0.1% of Gross Domestic Product (GDP). Although this is the smallest deficit scale since Japan set this fiscal target in 2001, the government had predicted a fiscal surplus of 3.6 trillion yen for this fiscal year in the benchmark scenario calculation in August last year. It is worth noting that the basic fiscal balance statistics used by the Cabinet Office this time are broader than the criteria mentioned by Prime Minister Sanae Takaichi in December last year. At that time, the Prime Minister cited the indicator corresponding to the initial annual budget as the basis, while the Cabinet Office's broad data not only includes the initial budget but also covers other expenditures within the fiscal year, as well as expenditures from central and local governments and other public funds. For a long time, achieving a balanced basic fiscal balance under this broader criteria has been a core fiscal goal of Japan. However, Takaichi downplayed this goal recently and instead focused on reducing the ratio of public debt to GDP. In fact, even with this broad criteria, the short-term calculation results had already shifted from an expected surplus to a deficit last year. Although Takaichi's previous goal of achieving a fiscal surplus could still be reached under a narrower criteria, this result significantly deviates from Japan's long-held goal of a surplus under a wider criteria. Against the backdrop of investors closely monitoring Japan's fiscal situation, this may significantly damage the image of "responsible fiscal management" that Japan has been promoting. Earlier this week, long-term Japanese government bond yields surged, affecting global markets, and one of the reasons for the rise in yields was investors' concerns about Japan's debt trend. Takaichi, in preparation for the interim elections on February 8, promised to temporarily reduce the food consumption tax to zero, further fueling market concerns. Among them, the 40-year Japanese government bond yield surpassed 4%, hitting a new high since its issuance in 2007 and became the first time in over 30 years for various term sovereign government bond yields in Japan to reach this level. The yield on 30-year and 40-year government bonds increased by over 25 basis points, marking the largest increase since the implementation of the "Trump Tariffs" policy in April last year. Market volatility prompted Japanese Finance Minister Kouzuki Katayama to call on market participants to remain calm on Tuesday, and U.S. Treasury Secretary Beeson also communicated with Katayama on the same day. Although Japanese government bond yields have fallen from their highs since then, investors remain skeptical about whether the Japanese government can restore the current tax rat...