Fwd: Japan

'The key to the budget is a continuing expansion in tax revenue. Although the economy has been struggling, Japanese corporations are earning record profits — and paying more taxes as a result — thanks in part to the money they earn overseas.

Those earnings have been amplified by a sharp decline in the yen's exchange rate over the past two years. Adjusting for changes in trade patterns and prices, economists say the currency is cheaper now than it has been since the early 1970s. That makes every dollar earned by Japanese businesses more valuable when repatriated to Japan.

Another growing source of tax revenue, sales tax, is also helping the treasury. The government increased the national sales tax in April, a widely resented move that was blamed for pushing the nation into recession. But as the economy starts to stabilize again, the measure should help shrink the deficit.

The rebound in tax revenue means new borrowing will be a trim — by Japanese standards — ¥36.86 trillion, the smallest amount relative to the size of the budget in six years. Perhaps more important, that debt will be taken on at historically low cost, since the Bank of Japan, the country's central bank, is holding down interest rates by buying up vast amounts of bonds from the market.

The shift is important. Japan is carrying the developed world's largest public debt load, with overall government borrowing equal to about two and a half times gross domestic product. In some years, tax revenue has covered barely half of government spending…

Mr. Abe has been increasing Japan's military spending to counter what he sees as the threat from an increasingly powerful China. The defense budget will expand 2 percent in the coming year, to a record ¥4.98 trillion. Although that is still only about 1 percent of Japan's gross domestic product — about half the ratio of that in China and a quarter of that of the United States'


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