* Real 2.5 pct growth seen in 2013/14, up from 1 pct in
* Abe urges BOJ to hit inflation target soon as possible
* Tax revenue seen topping borrowing in next budget
* Analysts say no fiscal consolidation yet, tax hike key
By Tetsushi Kajimoto
TOKYO, Jan 28 Japan's government on Monday
forecast a strong rebound in economic growth that could nudge
tax revenue in the next budget above borrowing for the first
time in four years, but analysts say it will need to do more to
show it takes fiscal discipline seriously.
Prime Minister Shinzo Abe, who led his Liberal Democratic
Party back to power in a December landslide with promises of
more public spending and ultra-easy monetary policy, told an
opening session of the new parliament that reviving the stagnant
economy remained the most pressing task.
Under pressure from Abe, the Bank of Japan last week raised
the prospect of more aggressive monetary policy by agreeing to a
2 percent inflation target backed by open-ended asset buying.
Abe urged the BOJ on Monday to hit its inflation target as soon
But seeking to dispel concerns the government's stimulus
efforts could come at a price of driving Japan's mammoth debt to
a point of no return, Abe also promised efforts to bring fiscal
deficits back under control.
The government is expected to present its draft budget for
the next fiscal year from April 1 as a first such step. After
years of deterioration, the draft due to be approved on Tuesday
is set to show tax receipts on the rise and borrowing falling
below the 44 trillion yen ($483.62 billion) cap maintained by
the previous governments.
But analysts point out that the improvement will be only
symbolic because taken together with an extra 10.3 trillion yen
stimulus approved earlier this month, it would still vault
borrowing to new highs.
"I don't think the government has streamlined spending with
this budget. Rather fiscal expansion is continuing," said
Katsutoshi Inadome, fixed income analyst at Mitsubishi UFJ
Morgan Stanley Securities.
"The government is only trying to present a rosy picture of
its finances by trimming new borrowing and keeping it below tax
revenue in the next fiscal year, while boosting fresh bond
issues through an extra budget for the current year."
Citing improving global economic conditions and stimulus at
home, the government forecast the economy would grow 2.5 percent
in real terms in the next fiscal year, up from 1.0 percent this
The forecast is roughly in line with last week's central
bank predictions, but more optimistic than a 1.8 percent
consensus forecast in a Reuters poll earlier this month and the
government's previous 1.7 percent projection published last
Based on that, the budget draft will show tax revenues
rising by 1 trillion yen to 43.1 trillion yen, while the amount
of new bonds sold to finance the budget gap would fall to 43.1
trillion or less, sources told Reuters last Friday.
Analysts also said growth, revenue and borrowing forecasts
all looked realistic. But Abe needed to do much more to convince
markets that his government would do enough to bring public debt
-- already twice the size of its economy -- back under control.
They said the first serious test will come in August, when
the government will decide whether the economy is strong enough
to follow through with a sales tax increase, which the LDP
agreed to along with other major parties while still in
"Financial markets will closely watch whether the government
can decide in the autumn to go ahead with a planned sales tax
hike from April 2014," said Hidenori Suezawa, chief bond
strategist at SMBC Nikko Securities.
The government forecast assumes that the planned rise in the
tax rate to 8 percent from the current 5 percent in April 2014
will go through, with a spending rush ahead of the hike expected
to give growth an extra boost.
While some economists gave the new government credit for
"front-loading" borrowing and stimulus in the extra budget and
aiming for some tightening later on in the regular budget,
others say current borrowing targets are much too lax.
"The amount of borrowing is simply too big. A 44 trillion
yen cap may have served as a key target in keeping fiscal
discipline in the past, but new borrowing should be reduced
further ahead," said Chotaro Morita, chief fixed income
strategist at Barclays Securities Japan.