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(Bloomberg) — Japan’s tax revenues reached another record in the fiscal year ended in March, a positive outcome partly driven by the weak yen and sticky inflation.
Tax income for the latest fiscal year rose to ¥72.1 trillion ($446 billion) from ¥71.1 trillion in the previous year, the Finance Ministry reported Wednesday. Income tax revenue slipped to ¥22.1 trillion from ¥22.5 trillion in fiscal year 2022, while corporate tax revenue grew to ¥15.9 trillion from ¥14.9 trillion.
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Even with the revenue gains, Japan’s fiscal plight is severe. The nation shoulders the heaviest public debt burden among developed nations, with the amount expected to reach ¥1,105 trillion at the end of this fiscal year, equivalent to more than 250% of gross domestic product, according to the International Monetary Fund.
With the Bank of Japan expected to raise interest rates again this year, the urgency of fiscal reform is growing. The Japanese government last month reaffirmed its commitment to balancing the budget by the fiscal year beginning in April 2026 in its recent annual policy plan.
The record tax revenues partly reflected the weak yen’s impact in driving corporate earnings for Japanese exporters including Toyota Motor Corp., which posted record operating profit. With the currency recently trading at levels near a 38-year low against the dollar, exporters are poised to continue benefiting, while higher import costs for materials, energy and food will also pose challenges for manufacturers and consumers.
Inflation also contributed to improved performances of some businesses. A recent survey by Teikoku Databank indicated that more companies that were able to pass on higher costs to customers via price increases expected higher profits compared with last year. Pressure to lift prices is likely to persist given that Japan’s producer prices rose at the fastest clip in nine months in May.
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The extra tax revenue for the fiscal year stood at ¥851.7 billion, half of which is earmarked for defense spending. Amid escalating geopolitical tensions in Asia, Prime Minister Fumio Kishida announced plans in 2022 to double the military budget to 2% of GDP by fiscal year 2028, utilizing funds from tax hikes, expenditure reforms and the surplus.
The better-than-expected tax revenue may also raise questions about whether Kishida might consider implementing another tax rebate. Following last year’s record tax receipts, Kishida announced a ¥40,000 tax rebate, describing it as a way to return the increased tax revenue to the people. Government officials including Finance Minister Shunichi Suzuki have repeatedly maintained that such measures should be viewed solely as one-off actions.
(Updates with chart)
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