July 8, 2020 / 9:18 AM / a month ago

Japan's draft policy roadmap prioritises digitalisation, omits budget-balance mention

TOKYO (Reuters) - Japan will prioritise efforts to digitalise its economy and better cope with the fallout from the coronavirus pandemic, the government said in a draft policy framework that left open how the huge cost of combating the crisis would be funded.

FILE PHOTO: Passersby wearing protective face masks, following the outbreak of the coronavirus disease (COVID-19), walk on the crossing on the first day after the Japanese government lifted the state of emergency, at Ginza shopping district in Tokyo, Japan May 26, 2020. REUTERS/Issei Kato

The draft was presented at the Council on Economic and Fiscal Policy (CEFP), the government’s top economic panel, on Wednesday.

In more normal times, the policy focus would be on measures to rein in Japan’s huge public debt.

Instead, the government pledged to speed up digitalisation of its outdated administration, which has hampered the swift delivery of payouts to households and firms hit by the virus.

“We’ll strongly promote the digitalisation of our country’s society as a whole,” the draft document said.

The draft left out any explicit mention of the government’s target to achieve a primary budget surplus by fiscal 2025, a key move suggesting Tokyo is backing away from its commitment to rein in the country’s ballooning public debt.

The pandemic has forced Japan to compile two massive spending packages to cushion the economic blow, straining its already tattered finances and casting doubt on its ability to keep its fiscal house in order.

While the budget target has been seen as nearly impossible to meet, its omission could have dire consequences such as a downgrade in Japan’s sovereign debt credit rating, some analysts say.

“While the chance of an immediate downgrade is not large, the risk of one cannot be ruled out,” said Masaaki Kanno, chief economist at Sony Financial Holdings.

A Cabinet official said omitting mention of the budget surplus target didn’t mean the government’s fiscal policy had changed.

Reporting by Daniel Leussink and Tetsushi Kajimoto; Editing by Simon Cameron-Moore

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