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The views expressed in this presentation are the views of the author and do not necessarily reflect the

views or policies of the Asian Development Bank Institute (ADBI),


the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper
and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.

How financial institutions of Japan 
are organized and operated for 
sustainable economic growth?
Prepared for 
Effective Fiscal Governance for Sustainable Economic Growth In Asia,
24, April 2019, Bangkok, Thailand 

Kenzo Oe
Policy Research Institute, Ministry of Finance, Japan
Contents

1. Current Fiscal Situation of Japan

2. Cause of Huge Fiscal Deficit

3. Budget Process and Fiscal Institutions

4. Recent Efforts for Economic and Fiscal Sustainability

1
1. Current Fiscal Situation of Japan

2
FY2019 Budget: Expenditure and Revenue
(Ordinary + Temporal and Special Measures)
General Account Expenditure General Account Revenue
(Unit : bn yen)

National
Debt Service Government
23,508.2 Interest Bond issues
23.2% Payments 32,660.5
32.2% Income Tax
8,850.2 Tax and
19,934.0
Redemption of the 8.7% Stamp
Social Security Special 19.6% Revenues
National Debt
34,059.3 Deficit-
14,658.0 62,495.0
33.6% Financing
14.4% General Account Bonds
General Account
Primary Corporation
Others Total Expenditures Expenses 25,708.5 Total Revenues Tax
77,948.9 Construction
25.3%
10,134.7 101,457.1 Bonds 101,457.1 12,858.0
10.0% 76.8% 12.7%
(100.0%)
6,952.0 (100.0%)
National 6.9%
Defense Local Allocation
5,257.4 Public Tax Grants, etc. Other Revenues Others Consumption Tax
5.2% Works 15,985.0 6,301.6 10,311.0 19,392.0
6,909.9 15.8% 6.2% 10.2% 19.1%
Education
6.8%
And Science
5,602.5
5.5%

Food Supply 982.3 (1.0)


Energy 976.0 (1.0)
Economic Assistance 502.1 (0.5)
Former Military Personnel Pensions Primary Expenses: Indicator showing policy expenses of the fiscal year.
209.7 (0.2) (Primary Expenses = General Account Total Expenditure – National Debt Service)
Promotion of SMEs 179.0 (0.2) General Expenditure: 61,963.9 (61.1%)
Miscellaneous 6,785.6 (6.7) (General Expenditure = Primary Expenses – Local Allocation Tax Grants, etc.)
Contingency Reserves 500.0 (0.5)

(Note 1) Figures include Temporal and Special Measures, amounting to 2,028.0 bn yen.
(Note 2) Figures may not add up to the totals due to rounding.
(Note 3) Social security related expenditures account for 55.0% of the general expenditure.
3
FY2019 Budget: Expenditure and Revenue
(Excluding Temporal and Special Measures)

General Account Expenditure General Account Revenue


(Unit : bn yen)

National
Debt Service Interest Governmen
Payments t Bond
23,508.2
23.6% 8,850.2 issues Income Tax
8.9% 31,878.6 19,934.0
Redemption of the 32.1% 20.0%
National Debt Social Security Special Deficit- Tax and
33,991.4 Financing Stamp
14,658.0
34.2% Bonds General Account Revenues
14.7% General Account 25,708.5 62,495.0
Primary
Total Expenditures Expenses 25.9% Total Revenues Corporation
Others Construction
75,920.9 99,429.1 Tax
9,296.0 Bonds
9.3%
99,429.1 76.4% 12,858.0
6,170.1 (100.0%) 12.9%
National (100.0%) 6.2%
Defense
5,206.6 Local Allocation
Public Others Consumption Tax
Tax Grants, etc. Other Revenues
5.2% Works 5,055.6 10,311.0 19,392.0
15,985.0 10.4% 19.5%
Education 6,059.6 5.1%
16.1%
And Science 6.1%
5,382.4
5.4%

Food Supply 981.6 (1.0%)


Energy 910.4 (0.9%)
Economic Assistance 502.1 (0.5%)
Primary Expenses: Indicator showing policy expenses of the fiscal year.
Former Military Personnel Pensions
(Primary Expenses = General Account Total Expenditure – National Debt Service)
209.7 (0.2%)
General Expenditure: 59,935.9(60.3%)
Promotion of SMEs 174.0 (0.2%)
(General Expenditure = Primary Expenses – Local Allocation Tax Grants, etc.)
Miscellaneous 6,018.1 (6.1%)
Contingency Reserves 500.0 (0.5%)
(Note1) Figures may not add up to the totals due to rounding.
(Note2) Social security related expenditures account for 56.7% of the general expenditure.
4
<Economic Indicators>
FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019
(Actual) (Actual) (Actual) (Actual) (Actual) (Estimated) (Projected)
2.2% 2.4%
Nominal GDP Growth 2.6% 2.8% 0.7% 2.0% 0.9%
(0.8%) (2.0%)

Nominal GDP (tn yen) 507.3 518.2 533.0 536.8 547.4 552.5 566.1

Real GDP Growth 2.6% -0.4% 1.3% 0.9% 1.9% 0.9% 1.3%

2.9% 1.1%
Consumer Price Index  0.9% 0.2% -0.1% 0.7% 1.0%
(0.9%) (0.6%)

Unemployment Rate 3.9% 3.5% 3.3% 3.0% 2.7% 2.4% 2.3%


(Note1) Figures are shown on a 2008 SNA basis.
(Note2) FY2018 and FY2019: based on “FY2019 Economic Outlook and Basic Stance for Economic and Fiscal Management” (Approved by the Cabinet on December 18, 2018).
(Note3) Figures in parentheses in FY2014 and FY2019 exclude the impact of the consumption tax rate hike.

<Fiscal Indicators: Central Government’s General Account> (Unit: tn yen, unless otherwise stated)

FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019

General Expenditure 1/ 54.0 56.5 57.4 57.8 58.4 58.9 59.9


(62.0)

50.0 54.5 57.6 57.7 59.1 62.5


Tax Revenue 2/ 43.1 (7.9)
(4.5) (6.2) (6.3) (6.3) (6.4)

31.9
Government Bond Issues 1/ 42.9 41.3 36.9 34.4 34.4 33.7
(32.7)

Primary Balance 1/ -23.2 -18.0 -13.4 -10.8 -10.8 -10.4 -8.4


(-9.2)

Bond Dependency Ratio 1/ 46.3% 43.0% 38.3% 35.6% 35.3% 34.5% 32.1%


(32.2%)
1/ Figures in parentheses in FY2019 include the impact of the Temporal and Special Measures.
2/ Figures in parentheses represent the increased revenue of consumption tax hike (FY2014-FY2018: Increase by raising from 5% to 8%, FY2019: Increase by raising from 5% to 10%).
(Note1) Figures are based on initial budget. Bond Dependency Ratio is calculated by dividing Government Bond Issues by the Total Expenditure.
(Note2) General expenditure = Total expenditure in central government’s general account – National debt service – Local allocation tax grants, etc.
5
Tax Revenue, Expenditure and Bond Issues in General Account
(trillion yen)
120

101.0 100.7 100.2


98.8 98.2 97.5 98.1101.4 101.5
97.1
100
99.4
89.0 89.3
95.3
84.4 84.8 83.7 84.9 85.5
82.4 81.4 81.8
78.8 78.5
80 75.1 73.6 75.9 84.7

69.3 70.5 70.5


Total Expenditure
65.9
61.5 62.5
60.1 59.8 58.8 59.9
57.7
60 53.6 54.9 54.4 54.1 53.9 Tax revenue 56.3 55.5
50.6 51.5 53.0 50.8 51.0 51.9 52.1 50.7 51.0 52.0 54.0
49.4 47.9 49.1 49.1
46.9 47.2 46.8 47.2
45.6 15.0 47.0
43.4 43.8 43.3 44.3 47.5
41.9 43.9
42.3 42.8
38.8 38.2 38.7 40.9 38.0
40 34.1 34.9 34.0
37.5
35.0 35.3 35.5 41.542.811.4 38.5
34.9
33.6
35.4
32.4 Construction Bond Issues 33.0 33.2 7.6 8.4 7.0 6.6 32.7
30.5 30.0
31.3
29.1 29.0 6.7
8.9
26.9 Special Deficit-Financing Bond Issues 13.2 9.1 8.7 27.5 6.5
7.3
8.1 7.0
24.5 25.4 7.0
23.7 11.1 7.8 (0.8)
20.9 21.9 17.0 9.1
19.9 6.4
17.3 18.4 18.5 6.0
20 13.8
15.7 16.2
36.9
34.7 34.4 36.0 33.8
13.2
13.5 14.2 12.9 14.0 13.5 12.8 31.9
12.3 11.3 9.5 10.7 9.9 28.7 26.8 28.4 29.1 26.3 27.3
10.7 24.3 25.8 26.2 25.7
9.6 9.4 21.9 20.9 23.5
7.1 7.0 7.0 7.0 6.8 6.4 6.3 6.7 16.4 21.1 19.3
7.2 6.2 7.2 6.6 6.3 16.2 12.3 16.9
5.3 5.0 6.3
3.7 6.9
6.2 9.5 9.2 8.5
3.2 6.3 7.2 5.9 7.0 6.7 6.4 6.0 5.0 6.4 6.3 6.7
3.5 4.5 4.3
0 2.1 2.5 1.0
0.2
0.8 2.0

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 19
(FY)
(Note1) FY1975 - FY2017: Settled Figures; FY2018: Based on the Second Supplementary Budget, FY2019: Based on Draft Budget.
(Note2) Following various bonds are excluded: Ad-hoc Special Deficit-Financing Bonds issued in FY1990 as a source of funds to support peace and reconstruction activities in the Persian Gulf Region,
Tax reduction-related Special Deficit-Financing Bonds issued in FY1994 - FY1996 to make up for decline in tax revenue due to a series of income tax cuts preceding consumption tax hike from 3%
to 5%, Reconstruction Bonds issued in FY2011 as a source of funds to implement measures for the Reconstruction from the Great East Japan Earthquake and Pension-related Special
Deficit-Financing Bonds issued in FY2012 and FY2013 as a source of funds to achieve the targeted national contribution to one-half of basic pension.
(Note3) The dotted line in Total Expenditure represents a figure including the expenditure for the Temporal and Special Measures; and the solid line represents a figure excluding it.
The amount of Bond issues includes the bond issued for the Temporal and Special Measures; and the amount in parentheses represents the Construction bond issued for the Temporal and Special
Measures.
6
Accumulated Government Bonds Outstanding
(trillion yen)
950
897
900 Equivalent to 14 years of General Account Tax Revenue 880
5
6
850 (Tax Revenue in FY2019 General Account Budget: ¥62 Reconstruction Bonds
831 853
5 273
277
805 7
269
800 774 6 268
FY2019 Government Bonds Outstanding 744 8 266
750 ¥897 trillion (projected) 705 9 260

700 ↓ 670 10 258

650 ¥7.13 million per person 636 11 250


248
¥28.52 million per family of 4 594
246
600 614
541 546 238 601
527 532
550 579
cf. Average disposable income of 499
237 225
555
247 243 Construction534
500 a working family 1/ 457
241 Bonds 506
450 ¥5.21 million 421
226
477
392 445
400 1/ Disposable income is based on the "FY2017 Survey of Household 368 222
411
Economy" by the Ministry of Internal Affairs and Communications. 332 216 390
350 209
295 356
197
300 258 321
245 187 305
250 225 280 288
207 175 258
193 168
178 231
200 157 161 166
172 158
134
145 152 131
142 199 Special
150 110
122
102 108
116 176
Deficit-Financing
96 91 97 158
82 81 87
75 134
100 56
71
63
69
108
Bonds
43 56
32
50 15 22 42
49
67 77 83
1 2 2 2 3 4 6 8 10 59 64 65 65 64 65 64 63 61 64
0 22 28 35 47 53
13 17 21 28 33 40
0 10 15
2 5
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 19
(FY)
(Note1) FY1975 - FY2017: Settled Figures; FY2018: Estimated Figures, FY2019: Based on Draft Budget
(Note2) Special Deficit-Financing Bonds Outstanding includes refunding bonds for long-term debts transferred from JNR Settlement Corporation, the National Forest Service, etc., Ad-hoc Special Deficit-
Financing Bonds, Tax reduction-related Special Deficit-Financing Bonds and Pension-related Special Deficit-Financing Bonds.
(Note3) Government Bonds Outstanding includes Reconstruction Bonds issued (FY2011: in General Account, after FY2012: in Special Account for Reconstruction from the Great East Japan Earthquake)
as a source of funds to implement the measures for the reconstruction from the Great East Japan Earthquake in FY2011- FY2019 (FY2011: 10.7 trillion yen, FY2012: 10.3 trillion yen, FY2013: 9.0
trillion yen, FY2014: 8.3 trillion yen, FY2015: 5.9 trillion yen, FY2016: 6.7 trillion yen, FY2017: 5.5 trillion yen, FY2018: 6.0 trillion yen, FY2019: 5.4 trillion yen)
(Note4) The estimate of FY2019 excluding front-loading issuance of refunding bonds is approximately 844 trillion yen.
7
Government Bond Issuance

• Article 4, Public Finance Act :


National government expenditures must be financed
by resources other than public bond and borrowing.
However, in order to finance public infrastructure
expenditures, capital contributions and loans, public
bond issuing and borrowing within the amount which
is approved by the Diet is allowed.

“Construction bonds”: authorized by the budget in


accordance with the Public Finance Act.

“Special Deficit-Financing bonds”: authorized by special


legislation in the Diet (overriding the Public Finance Act).
8
Construction Bond and Special Deficit‐Financing Bond
Special Act
must be
approved by
the diet

Special Deficit-
Financing Bond

Construction Construction Bond


Bond

Sum of Public Gap between Sum of public Gap between total


infrastructure total expenditure infrastructure expenditure and
expenditures, and revenue expenditures, revenue excluding
capital excluding bond capital bond issuance
contributions issuance contributions
and loans and loans

9
Long-Term Debt Outstanding of Central and Local Governments
(Unit: trillion yen)
FY1998 FY2003 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019
<Actual> <Actual> <Actual> <Actual> <Actual> <Actual> <Actual> <Actual> <Actual> <Actual> <Actual> <Estimated> <Draft Budget>

Central
390 493 621 662 694 731 770 800 834 859 881 909 928
Government
( 387 ) ( 484 ) ( 613 ) ( 645 ) ( 685 ) ( 720 ) ( 747 ) ( 772 ) ( 792 ) ( 815 ) ( 832 ) ( 854 ) ( 875 )

General
295 457 594 636 670 705 744 774 805 831 853 880 897
Bonds
( 293 ) ( 448 ) ( 586 ) ( 619 ) ( 660 ) ( 694 ) ( 721 ) ( 746 ) ( 764 ) ( 786 ) ( 805 ) ( 825 ) ( 844 )

Percentage
56% 88% 121% 127% 136% 143% 147% 149% 151% 155% 156% 159% 158%
of GDP
( 56% ) ( 87% ) ( 119% ) ( 124% ) ( 134% ) ( 140% ) ( 142% ) ( 144% ) ( 143% ) ( 147% ) ( 147% ) ( 149% ) ( 149% )
Local
Governments 163 198 199 200 200 201 201 201 199 197 196 196 194
Percentage
of GDP 31% 38% 40% 40% 41% 41% 40% 39% 37% 37% 36% 35% 34%

553 692 820 862 895 932 972 1001 1,033 1,056 1,077 1,105 1,122
Total
( 550 ) ( 683 ) ( 812 ) ( 845 ) ( 885 ) ( 921 ) ( 949 ) ( 972 ) ( 991 ) ( 1012 ) ( 1028 ) ( 1050 ) ( 1069 )

Percentage
105% 134% 167% 173% 181% 189% 192% 193% 194% 197% 197% 200% 198%
of GDP
( 105% ) ( 132% ) ( 165% ) ( 169% ) ( 179% ) ( 186% ) ( 187% ) ( 188% ) ( 186% ) ( 189% ) ( 188% ) ( 190% ) ( 189% )

(Note1) GDP: FY1990 - FY2017: Actual Figures, FY2018 and FY2019: Based on the Government Economic Outlook.
Central Government debt: FY1990 - FY2017: Actual Figures, FY2018: based on the Second Supplementary Budget, FY2019: draft budget.
Local Government debt: FY1990 - FY2017: Actual Figures, FY2018 and FY2019: based on Local Government Debt Plan, etc.
(Note2) Government Bonds Outstanding includes Reconstruction Bonds as a source of funds to implement the measures for the reconstruction from the Great East Japan Earthquake in FY2011- FY2019
(FY2011: 10.7 trillion yen, FY2012: 10.3 trillion yen, FY2013: 9.0 trillion yen, FY2014: 8.3 trillion yen, FY2015: 5.9 trillion yen, FY2016: 6.7 trillion yen, FY2017: 5.5 trillion yen, FY2018: 6.0 trillion yen,
FY2019: 5.4 trillion yen) and Pension-related Special Deficit-Financing Bonds as a source of funds to achieve the targeted national contribution to one-half basic pension (FY2012: 2.6 trillion yen,
FY2013: 5.2 trillion yen, FY2014: 4.9 trillion yen, FY2015: 4.6 trillion yen, FY2016: 4.4 trillion yen, FY2017: 4.1 trillion yen, FY2018: 3.9 trillion yen, FY2019: 3.6 trillion yen).
(Note3) Figures in parentheses (to FY2017) do not include front-loading issuance for refunding. Figures in parentheses (from FY2018) do not include front-loading limit of issuance for refunding.
(Note4) The borrowings in the Special Account for Local Allocation and Local Transfer Tax are shared by the central government and local governments in accordance with their shares of redemption. The
amount of the borrowings outstanding incurred by the central government was transferred to the General Account at the beginning of FY2007, so that the borrowings outstanding in the Special
Account since the end of FY2007 are the debt of the local governments (approx. 31 trillion yen in FY2019).
(Note5) Government Bonds Outstanding in the Special Account for Fiscal Investment and Loan Program are at approximately 92 trillion yen as of end-FY2019.

10
International Comparison of General Government Gross Debt

(%) (%)
240 Japan
CY 2004 2005 2006 2007 2008 2009 2010 2011
Japan 171.7 176.8 176.4 175.4 183.4 201.0 207.9 222.1
U.S. 66.2 65.6 64.3 64.8 73.8 86.9 95.5 99.9
U.K. 38.6 39.8 40.7 41.7 49.7 63.7 75.2 80.8
210
Germany 64.8 67.0 66.5 63.7 65.2 72.6 80.9 78.6
France 65.9 67.4 64.6 64.5 68.8 83.0 85.3 87.8
Italy 100.1 101.9 102.6 99.8 102.4 112.5 115.4 116.5 180
Canada 72.1 70.9 70.1 66.8 67.8 79.3 81.1 81.5

CY 2012 2013 2014 2015 2016 2017 2018 2019 150


Japan 229.0 232.5 236.1 231.3 235.6 237.6 238.2 236.6
U.S. 103.3 104.9 104.6 104.8 106.8 105.2 106.1 107.8
Italy
U.K. 84.1 85.2 87.0 87.9 87.9 87.5 87.4 87.2
120
Germany 79.8 77.5 74.6 70.9 67.9 63.9 59.8 56.0
U.S.
France 90.6 93.4 94.9 95.6 96.6 96.8 96.7 96.5
France
Italy 123.4 129.0 131.8 131.5 132.0 131.8 130.3 128.7
90 U.K.
Canada 84.8 85.8 85.0 90.5 91.1 89.7 87.3 84.7 Canada
(Source) IMF "World Economic Outlook Database" (October 2018).
(Note1) Figures represent the general government-based data.
(Note2) FY2019 draft budget data is not reflected.
(Note3) Figures for Japan: FY2004-2016 are Settled Figures; and FY2017-2019 are Estimated 60
Figures. Figures for other countries: FY2004-2017 are Settled Figures; and FY2018-
Germany
2019 are Estimated Figures.

30

0
2004200520062007200820092010201120122013201420152016201720182019
(CY)

11
International Comparison of General Government Net Debt

(%) (%)
160
CY 2004 2005 2006 2007 2008 2009 2010 2011
Japan
Japan 95.2 96.4 95.4 97.6 108.5 122.7 131.1 142.4
U.S. 47.8 46.5 45.0 44.9 51.7 62.7 70.0 76.5
U.K. 34.7 35.8 36.3 36.6 43.9 57.0 68.1 72.5
140
Germany 54.5 56.9 55.8 52.9 52.6 59.4 60.9 59.2
France 56.8 59.0 58.1 58.1 59.8 69.7 73.6 76.4
Italy 92.6 93.4 94.2 92.1 94.1 102.8 104.7 106.8 120
Italy
Canada 32.4 28.4 25.5 22.1 18.4 24.4 26.8 27.1

CY 2012 2013 2014 2015 2016 2017 2018 2019 100


Japan 146.7 146.4 148.5 147.6 152.8 154.9 155.7 154.8
U.S. 80.3 80.8 80.4 80.1 81.2 78.8 77.7 77.9 France
U.K. 75.5 76.8 78.8 79.3 78.8 77.9 78.0 77.6
80 U.S.
Germany 58.4 57.6 54.1 51.1 48.2 44.9 41.5 38.3 U.K.

France 80.0 83.0 85.5 86.4 87.5 87.5 87.4 87.2


Italy 111.6 116.7 118.9 119.5 119.5 119.5 118.3 117.0
60
Canada 28.3 29.3 28.0 27.7 28.5 27.7 27.7 27.2
(Source) IMF "World Economic Outlook Database" (October 2018).
(Note1) Figures represent the general government-based data.
(Note2) FY2019 draft budget data is not reflected.
(Note3) Figures for Japan: FY2004-2016 are Settled Figures; and FY2017-2019 are Estimated 40 Germany
Figures. Figures for other countries: FY2004-2017 are Settled Figures; and FY2018-
2019 are Estimated Figures.
Canada

20

0
2004200520062007200820092010201120122013201420152016201720182019
(CY)

12
2. Cause of Huge Fiscal Deficit

13
Population Aging and Budget Structure

Proportion of Population aged 65+

(%) 2050: *Figures in the parentheses are in GDP terms.


40 38%
Expenditure, FY2018 Draft Budget (trillion yen)

Public Works, National


2018: Education etc.
Social Security
Debt Service
30
28% 2018 33.0
40.4 (6.0%) 23.3
(7.4%) (4.2%)

20 Total: + 27.4 - 0.7 + 20.8 + 7.3

1991:
13%
42.1 12.2 16.0
10 1991 (8.9%) (2.6%) (3.4%)

Expenditure, FY1991
(trillion yen)
0
1 11 21 31 41 51 61 71

Source: National Institute of Population and Social Security Research “Japanese Future Demographic Projection “ (Apr. 2017)

14
Estimated Demographic Composition (as of April 2017)

(million people)
140 Latest Estimation (April, 2017)

Total population at the previous estimation


120 16.3 (January, 2012)
(12.8%)

1.9 17.6 75 and above


(1.9%) 100 (13.8%)

4.3
(4.4%) From 65 to 74
80
22.5
(25.5%)

60 71.2
(56.0%) 11.3
56.1 (12.9%)
(57.1%) From 20 to 64
40
41.9
(47.6%)
20
22.0
36.0 Under 20 12.4
(17.3%)
(36.6%) (14.0%)
0
196519701975198019851990199520002005201020152020202520302035204020452050205520602065 (CY)

15
Demographic Change
<Ratio of People Older than 65 years to the Total <Japan’s demographic composition>
(%)
Population>
40 Total Total
Total population population
Japan Total
population 126.9 127.0
123.6 population
120.7
35 14.9 22.0
Total Total
(12.0%) (17.4%) 33.1
Germany population population

Population (million) / component ratio
98.3 (26.1%)
36.6 97.1
30 (30.3%)
6.2
(6.3%)
France
25 U.K.
Japan:23.0 37.7 Age 65 
China (38.8%) and 
76.2
Germany:20.8 U.S. (61.7%)
over
56.1 78.9
20 (62.1%)
(57.1%) 71.8
France:16.8 (56.6%) 65.6
(54.4%)
15
Age 
U.K.:16.6 46.4 20‐64
(47.8%)
10
U.S.:13.1
36.0 32.5
(36.6%) (26.3%) 26.0 22.0
(20.5%) 18.5
5 China:8.4 (17.4%) 13.0 Age 19 
(15.3%)
(13.4%) and 
under
1965 1990 2000 2014 2025 2050
0
2010 (Source) Demographic composition from 1965 to 1990 according to the “National population census” 
1950 1970 2000 2030 2050
(CY) conducted by the Ministry of Internal Affairs and Communications, and data for 2014 onwards 
(Source)   Japan   1950‐2010: “National Census” (Ministry of Internal Affairs and Communications) according to “Japan’s demographic composition in the future (estimation as of January 2012)” 
2011‐2050: “Japanese Future Demographic Projections” (National Institute of Population and 
Social Security Research) (January, 2012) issued by the National Institute of Population and Social Security Research.
Other countries: “World Population Prospects: the 2012 Revision” (United Nations)
16
Demographic Challenges

• 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.

2018 2025 2035


Total population 126.2 million Total population 122.5 million Total population 115.2 million

Aged 75 and over :14% Aged 75 and over : 18% Aged 75 and over: 20%
100 100 100

90 90 90

80 80 80
75 years old:
70 70 Aged 65-74: 12% 70 Aged 65-74: 13%
Aged 65-74 :14%
65 years old:
60 60 60

50 50 50

40 40 40

30 30 30
Aged 20-64: 55% Aged 20-64: 54% Aged 20-64: 52%

20 years old: 20 20 20

10 Aged 19 and under: 17% 10 Aged 19 and under: 16% 10 Aged 19 and under: 15%

0 0 0
0 1 2 3 0 1 2 3 0 1 2 3

First baby boomers Second baby boomers

(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)”
17
Burden of Social Security Benefits

For 75 or over, medical and long-term care expenditures are significantly higher than the younger
generations (So is government contribution per capita). Given the increase in the population aged
75 or over, streamlining and prioritizing medical and long-term care costs is inevitable.

Number and ratio
Medical Care (CY2014) Long‐term Care (CY2014)
to total population
Long‐term care 
Medical care  benefits per 
benefits per  Public aid
per capita capita Public aid
CY2014 CY2025 capita Figures in 
(Aged 64 or under per capita
(Aged 64 or under :¥25 thousand) parentheses: Ratio of 
:¥180 thousand) certification of long‐
‐2 mil people term care

Aged 17.1 14.8 ¥55 K


65‐74
¥554 K ¥78 K ¥15 K
mil people mil people (4.4%)
(13.4%) (12.3%) 5 times 10 times
+6 mil people

Aged 75  15.9 21.8  ¥532 K


or over
¥ 907 K ¥356 K ¥145 K
mil people mil people (32.6%)
(12.5%) (18.1%)
(Source) Population ratio per age group: Ministry of Internal Affairs and Communications “Population Estimates”, Medical care expenditure: Ministry of Health, Labour and Welfare, “Overview of National Medical Care Expenditure (FY2014)”,
Long-term care benefits and ratio of certification of long-term care: Ministry of Health, Labour and Welfare “Survey of Long-term Care Benefit Expenditures (2014)”, Statistic Bureau, Ministry of Internal Affairs and Communications “Population
Estimates”
(Note) National medical care expenditures per capita are calculated just by dividing the national medical care expenditures per age group by the population of each generation. Publicly funded expenditures per capita are calculated just by
dividing publicly funded expenditures per age group by the population of each generation as of 2014.
18
Outlook of the Expense of Social Security

188.2~190.0 trillion yen


(23.8~24.0%)

22.5trillion yen
(2.9%)
140.2~140.6 trillion yen
(21.7~21.8%) 25.8trillion yen
Long-term care (3.3%)
121.3 trillion yen 1.7 times
(21.5%) 17.7trillion yen
(2.7%)
14.6 trillion Long-term care 15.3trillion yen
Others 1.4 times 66.7~68.5
yen(2.6%) (2.4%) Medical care
10.7trillion yen 1.4 times
trillion yen
Long-term care
(1.9%) Medical care (8.4~8.7%)
47.4~47.8
1.2 times
trillion yen
39.2trillion yen
Medical care (7.3~7.4%)
(7.0%)

Pension
Pension 1.2 times
1.1 times 73.2trillion yen
56.7trillion yen 59.9trillion yen (9.3%)
Pension
(10.1%) (9.3%)

GDP GDP
1.14 times 1.22 times
2018 2025 2040
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
19
Financial resources of Social security expenditures
Child Child Rearing Long-term care Employment Workers compensation
allowance allowance Insurance. insurance
10/10※1

17.2%

Local
13.8% Gov.
(15.1%)
Social insurance 
1/4
1/4 contributions
1/2 1/2 1/2
1/2 65歳以上:
13.8% Local 75歳以上:1/10
75歳未満:4/10 23/100
(15.1%) 40~64歳:
Gov. 27/100

1/4 3/4 10/10 10/10


9/100 83.6%
1/12 1/8
3/4 1/12
National  1/8
55.2%
(60.5%) 1/2 government
1/2 41/100
1/3 1/4
1/4 16.4%

Basic Employee’s
pension pension

Medical care for Japan Health


Public National Insurance Social-managed
latter-stage
assistance Health Association Health Insurance
elderly
Insurance.

20
Characteristics of Japan’s social security system

21
Increase in Social Security Benefits
Fiscal Resource
Benefits ¥117.2 trillion
¥121.3 trillion +Asset Income
(trillion yen) 116.9
×
Asset Income, etc.
Long‐term Care, Burden of
Social Security 47.7 Welfare, etc. 
25.3
Local
Governments

100
Benefits (of which, Long‐
term Care 10.7)
13.8 trillion

Burden of
Central
Government
80 Medical care 33.1
39.2
Revenues of Tax
and Government Bonds
68.
60 9
16.2

×
47.4
40
39.
Social
Contributions
5 Insurance Pension 70.2

Contributions 56.7
20

0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 (FY) FY2018
13 14 15 16
(Source) National Institute of Population and Social Security Research “The cost of Social Security Benefits”, FY2018: Ministry of Health, Labour and Welfare (Based on Initial Budget).
22
3. Budget Process and Fiscal Institutions

23
Budget process in Japan
• Fiscal Year: April – March
• Annual process (Budget of Fiscal Year X)
Date Process
April to June Cabinet decision on Basic Policy on Economic 
(in Year X‐1) and Fiscal Management and Reform
July to August Cabinet decision on the budgetary request 
guidelines for requesting ministries 
August 31 Submission of budget requests from the 
ministries to MOF
late December Cabinet decision of the draft budget  
January Submission of the draft budget from the Cabinet 
(in Year X) to the Diet 
by end of March Diet approves the budget (Lower House => 
Upper House)  24
Budgeting Process in detail
Fiscal Year (FY): April to next March
April
Policy Discussion at CEFP(Council on Economic and Fiscal Policy)

~
June Basic Policy on Economic and Fiscal Management and Reform
(including “Integrated Economic and Fiscal Reforms”) (approved by Cabinet)

Economic and Fiscal Projections for Medium to Long Term Analysis(decided by Cabinet)

July Guideline for Budget Requests (approved by Cabinet)

August Line Ministries: Submission of budget requests to MOF

September
Discussion between MOF and line ministries
~

November

December Basic Principles on Budget Formulation (decided by Cabinet)

Draft Budget (decided by Cabinet)

January Preparation of budget documents

Draft Budget with budget documents (decided by Cabinet)

Economic and Fiscal Projections for Medium to Long Term Analysis(decided by Cabinet)

Submission of the Draft Budget to the Diet

Deliberation in the Diet


February (House of Representatives → House of Councilors)

March Approval of Budget 25


Council on Economic and Fiscal Policy (CEFP)

I. Roles of the Council
i. In response to inquiries by the Prime Minister, carrying out surveys and discussions on important 
economic and fiscal policies (e.g. Basic Policies for Economic and Fiscal Management and Reform, 
Basic Principles of Budget Formulation).
ii. In compliance with inquiries by the Prime Minister and/or responsible ministers, examining and 
ensuring consistency among important economic policies.
iii. Advising the Prime Minister on the above issues. 

Chair Shinzo Abe Prime Minister


II. Members
Members Taro Aso Deputy Prime Minister, Minister of Finance
Yoshihide Suga Chief Cabinet Secretary
Minister of State for Economic and Fiscal Policy,
Toshimitsu Motegi
Minister in charge of Economic Revitalization
Masatoshi Ishida Minister for Internal Affairs and Communications
Hirosige Seko Minister of Economy, Trade and Industry
Haruhiko Kuroda Governor of the Bank of Japan
Experts (4)
Shumpei Takemori Professor, Faculty of Economics, Keio University 
Noriyuki Yanagawa Professor, Graduate School of Economics, The University of Tokyo
Hiroaki Nakanishi Chairman of the Board and Executive Officer, Hitachi, Ltd.
President & Chief Executive Officer, Member of the Board,
Takeshi Niinami
Representative Director, Suntory Holdings Limited
http://www5.cao.go.jp/keizai-shimon/index_en.html
26
Organization and Functions of MOF
Minister of Finance
-Overall co-ordination of the administration;
Minister’s Secretariat matters concerning personnel management and
accounts of the Ministry of Finance

Budget Bureau -Planning, drafting and consolidation of budget


system

-Planning and drafting of tax system and


Tax Bureau estimation of tax revenue

-Planning and drafting of Customs duties; planning


Customs and Tariff Bureau and drafting of international treaties concerning
Customs duties; supervision of Customs houses

-Matters concerning treasury system, government


Financial Bureau debt management, issuance of coins, the Fiscal
Investment and Loan Program, national property
- Investigation, planning and drafting of matters concerning
International Bureau foreign exchange and international monetary systems
and their stability; adjustment of balance of payments

Facilities (Policy Research Institute, etc)


Local Finance Bureaus, Customs Houses

National Tax Agency 27


Guideline for FY2019 Budget Requests (July 10th, 2018)

Based on the following


(among others)
(i) Basic Policies for
Economic and Fiscal
Reduction of Non- Management and
Discretionary Exp B×3 Reform 2018
(ii) Growth Strategy 2018

Increase due to population Reduction of


aging: 0.60 trillion Discretionary Exp A×3

If Cut :▲B
Cut by 10% : ▲A

“Baseline“
Primary
Expenditure
FY2018 Pensions, Non-
Local Allocation Discretionary Discretionary
Budget Medical care,
(74.4 trillion) Tax Grants Expenditures Expenditures
etc.

FY2018: 15.5 trillion FY2018: 31.5 trillion FY2018: 14.7 trillion FY2018: 12.7 trillion

Note: The expenditures in relation to the Comprehensive Reform on Social Security and Tax, including expansion of social security services in
parallel with the consumption tax hike, will be examined in the budget process. In this process, revenues of the consumption tax and
prioritization of the social security benefits are duly considered.

28
Decision making in Japan   (Japanese political system)

• Parliamentary Cabinet System

• Authorizing the policy in the government
• Cabinet decision 
(budget drafts, law drafts, policy direction・・・)

• Pre‐discussion/ pre‐adjustment with the ruling 
(majority)  parties  

29
Fiscal principle

• Approval by the Diet
• Article 83. The power to administer national finances 
shall be exercised as the Diet shall determine.

• No taxation without law
• Article 84. No new taxes shall be imposed or existing 
ones modified except by law or under such conditions 
as law may prescribe.

• All expenses must be appropriated in a budget
• Article 85. No money shall be expended, nor shall the 
State obligate itself, except as authorized by the Diet.

30
Fiscal principle (cont’d) 

• Single fiscal‐year principle of budget 
• Article 86 of the constitution 
The Cabinet shall prepare and submit to the Diet for its 
consideration and decision a budget for each fiscal year

• Independence of the fiscal year
• Expenses in each fiscal year shall be paid with a revenue 
of the fiscal year.
Cf. Some exceptional expenses are stipulated in the   public 
finance act 

31
Budget approval process in the diet
• Fiscal year starts with April 1st
• Make every effort to have the budget draft 
approved by the end of march. 
• Debate and negotiation between majority parties and 
opposition parties  
• The supremacy to the lower house, as follows,  
“Upon consideration of the budget, when the House of Councillors makes 
a decision different from that of the House of Representatives, and when 
no agreement can be reached even through a joint committee of both 
Houses, provided for by law, or in the case of failure by the House of 
Councillors to take final action within thirty (30) days, the period of recess 
excluded, after the receipt of the budget passed by the House of 
Representatives, the decision of the House of Representatives shall be the 
decision of the Diet”
32
Budget approval process in the diet (cont’d)

• Middle of Jan.; Submission of budget draft to the diet
• Late Dec.       ; Deadline for the government decision
• August 31st     ; Submission of budget request to MOF 
• Before  submission, each ministry explains its budget requests to its 
relevant division meeting of majority parties.

• MOF discusses budget requests with each ministry
• After examining, with taking account of both the policy direction of the 
cabinet and the fiscal situation, MOF tries to reach agreement on budget 
draft with each ministry, which makes coordination with relevant party 
division. 

33
Budget approval process in the diet (cont’d)
• In order to make a budget in the desired direction, the Government tries 
to control the amount of the initial budget expenditure and/or that of 
bond issues. 
• The MOF elaborates budget requests guideline for the next fiscal year which 
each ministry must follow in submitting them to the MOF. 
• For example, since the social security expenditure structurally and 
automatically increases,  by putting a cap on the increase of budget, debates 
on restraining the increase of SSE will be held during examining process. 
• But in many cases the restraining of the increase of SSE needs to change the 
relevant act which requires the expenses.  

• Before the cabinet makes decision on the matters with budgets, 
debates and decision in the Council on Economic and Fiscal Policy 
(CEFP)  will be needed.  
• 2018.6.15 “Basic Policy on Economic and Fiscal Management and Reform 
2018”  

34
4. Recent Efforts for Economic and Fiscal 
Sustainability

35
Medium-Term Fiscal Consolidation Plan (2015)
Fiscal Consolidation Target
• To achieve a primary surplus of the central and local governments by FY2020; and at the same time steadily reduce the
public debt to GDP ratio.

Key Benchmarks for expenditure reform


- Building on the past achievements of the Abe Cabinet
- Allowing an increase in social security expenditure due to population aging, while an increase in expenditure is not
presupposed in other expenditure areas
- Considering a decline in total population and changes in wages and prices.
Benchmarks of reforming expenditure measures
1. Primary balance: approximately -1% of GDP in FY2018
With regard to this benchmark, we will review, and address appropriately, the impact of the postponement of the consumption
tax rate increase. - July 13, 2016 " Budget Overview: Fiscal Year 2017" by the Council on Economic and Fiscal Policy

2. General expenditure* of the central government: continuing the trend of the past three years under the Abe Cabinet until
FY 2018 (i.e., increase of approximately 1.6 trillion yen over the next 3 years). * = Primary expenditure – Local allocation tax grant

3. Social security expenditure of the central government


Towards FY 2018: continuing the trend of the past three years under the Abe Cabinet until FY2018 (i.e., increase of
approximately 1.5 trillion yen over the next three years).
Towards FY2020: containing the increase within the level equivalent to the sum of (i) the expected increase due to population
aging and (ii) the planned enhancement of social security in parallel with the hike in consumption tax rate.

4. Expenditures of the local governments: Will be controlled in line with the efforts of the central government. The total
amount of general revenue shall be maintained substantially at the same level as in the FY2015 Fiscal Plan of Local
Governments until FY2018, and not below.
36
The Interim Review (March 29, 2018)

Primary Balance
Leakage Analysis of Progress toward Benchmark for FY2018
(Percent of GDP)

- 1% Benchmark for
- 5.6 tn yen ②Supplementary FY2018
budgets
‐0.4% (‐2.5 tn yen)
①Efficiency gain
through 
expenditure reforms 
+0.7% (+3.9 tn yen) ③ Slower growth Projection for FY2018
- 1.7% of tax revenues   at the onset of the
- 9.5 tn yen ‐0.8%(‐4.3 tn yen) current fiscal plan
Slow economic
recovery due to weak (without expenditure
world economic growth reforms)*
etc. ④ Deferred
Consumption tax 
hike 
‐0.7%(‐4.1 tn
- 2.9% yen) Current projection
- 16.4 tn yen for FY2018**

Expenditure Revenue
factor factor
(Source) Cabinet Office “Economic and Fiscal Projections for Medium- to Long-term Analysis”(Jan 23, 2018 & June 22, 2015)
(*) The economic revitalization case. In the projection, on the expenditure side, the spending reform in FY2016 is taken into account, that of FY2017 and 2018 are not reflected.
On the revenue side, the consumption tax hike to 10% in April 2017 is assumed.
(**)The economic growth achieved case. In this projection, the spending reforms of FY2016, 2017 and 2018 are taken into account and the consumption tax hike to 10% in October
2019 is assumed.
37
Main points of the New Plan to Advance Economic and Fiscal Revitalization
(Cabinet Decision in June 15, 2018)
Fiscal consolidation target
By FY2025 Achieve a primary surplus of the national and local governments

At the Steadily reduce the public debt to GDP ratio


same time
Mechanisms to integrate fiscal consolidation target and annual budget
formulation for FY 2019 to FY2021
Social security Contain the increase within the one corresponding to the increase due to
Expenditure population aging

Non-Social security
Expenditure
Continue the efforts of expenditure reforms thus far in the Abe Cabinet

Expenditures of the The total amount of the general revenue shall be maintained substantially at the
local government same level as in the FY2018 Fiscal Plan of Local Governments, and not below

Measures to realize the plan


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

38
Main points of the New Plan to Advance Economic and Fiscal Revitalization
in the Basic Policies 2018 (Cabinet Decision in June 15, 2018)
Firmly maintain the principle of “no fiscal consolidation wi thout economic revitalization” and
accelerate and expand the three pillar-reforms of “overcoming deflation/economic
revitalization”, “expenditure reforms,” and “revenue reforms.”

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

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.

39
Main points of New Economic and Fiscal Consolidation Plan in the Basic Policies 2018
(June 15, 2018 Cabinet Decision)

Mechanisms to integrate fiscal consolidation target and annual budget formulation for FY 2019 to FY2021 (cont.)

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.

Measures to realize the plan


 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.
(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.
 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.

40
Economic and Fiscal Projections for Medium- to Long-term Analysis (Cabinet Office)
(January 30, 2019)
Projected Primary Balance

Fiscal Year Primary Balance (in trillion yen) in GDP terms (%) Note
2019 -14.6 -2.6
Economic Growth
2025 -1.1 -0.2
Achieved Case Target: Primary Surplus
Baseline Case -6.8 -1.1

Primary Balance Outstanding Debt ratio to nominal GDP


(Central and Local Governments) (Central and Local Governments)
(% of GDP) (% of GDP)
1.0%
0.7%
0.1% 200.0%
‐0.2%
187.2%
0.0%
190.0%
182.6%
‐1.3% 181.7%
‐1.0%
192.0%
‐1.7% ‐0.9% 180.0%
183.6%
‐2.2% ‐1.5%
‐2.0%
‐1.8% ‐1.1%
170.0%

‐3.0% ‐2.6%
‐2.8% 160.0%
166.6%

‐4.0% 150.0%
Economic Growth Achieved
156.2%
Target: Primary 
Case Economic Growth Achieved Case
成長実現ケース
‐5.0% ‐5.5% 140.0%
Baseline Case Intermediate Indicator: ‐ Baseline Case
1.5%)
‐6.0% 130.0%
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
(FY) (FY)

41
Achieving Japan’s Economic Revitalization and Fiscal Consolidation
Basic Policy2018
(June.15, 2018 Cabinet Achievement of the
Human Resources
Decision)
Development
virtuous economic cycle Achievement of fiscal
Revolution
• Reducing expenses for * Cooperation among consolidation targets
higher education labor, management,
and the government
• Making preschool education
* Raising minimum Wage
effectively free wages * Shifting to
• Promote the Plan for * Support R&D and social security • Aim to realize a surplus
Raising Children with Peace capital investments Capital system for all
in the primary balance
of Mind * Tax system to spur investment generations
• Raising wages for childcare wage hikes and for the national and
and long-term care workers productivity
• Reforms of universities * Expansion of local governments by
• Recurrent education business succession
Shifting to social security  tax system FY2025, and
system for all 
generations simultaneously aim for a
 Realizing a society in  Strengthen the  Eliminate concerns  stable reduction in the
which all citizens are  potential growth over the future
dynamically engaged debt-to-GDP ratio.
Supply System Consumption
Innovation • Securing sustainability
Corporate
• Investments that dramatically profits of social security
boost productivity Productivity
• Innovations for the fourth system
industrial revolution

 Capital investments and 
investments in human 
resources toward 
boosting productivity

Overcoming deflation/ Sustainable economic


Achieving price stability target at 2% growth
• The BOJ, together with the government, aims for overcoming
• Achieving 600 trillion yen
deflation as early as possible.
economy
• The BOJ aims at achieving price stability target at 2%.
42
Reform Direction of Medical and Long-term Care Service

Key Features of Japanese Medical and Long-term care service system

Universal Coverage Little entry barrier

Free access to basic services Payments by volume

Increase in
Patients go to hospitals and clinics too often…
medical and
long-term care
Doctors are incentivized to take as many patients as possible… expense

Reform Principles

Efficient and comprehensive system to Public assistance for large risks, while self-
provide medical services help for small risks

Burden sharing based on ability to pay Appropriate price adjustment for medical
(including financial asset), not age fees, long-term care fees, and drug price

43
Structure of current pension system(revised in 2004)
○ Reforms toward building the long-term sustainability and ensuring reliability of pension system were
implemented in the 2004 system revision under ideas of securing the benefit level appropriate as public
pension and avoiding placing excessive burdens on future working generations.
○ In particular, following changes and verifying soundness of pension finance (actuarial variation) at least
once every 5 years was decided to be implemented.
1. Raising contribution by the state of Basic Pension benefits to half
2. Increasing insurance premiums under an established upper limit
3. Introducing a mechanism(macroeconomic indexation) that automatically adjusts the level of benefits
within the available resources
〔burden〕 〔benefit〕
Raising contribution by the state of Basic Automatically adjustment of pension amounts by
Pension benefits to half macroeconomic indexation Increase of
※Securing stable financial resources by using prices and etc.
⇒ A mechanism has been implemented that automatically
revenue of consumption tax hike (5% to 8%)
adjusts the values of pension amounts, thereby
Rate of
permitting pension benefits to be sufficiently financed indexation
Utilization of National Pension reserves within available financial resources in an increasingly
aging society with a low birthrate. Percentage of
Increasing insurance premiums adjustment to pension amount
under an established upper limit

fixed!

Insurance State
premium Reserves contribution Pension amount
income

44