A group of private-sector advisers on one of Japan’s most influential government panels has called for a stronger commitment to fiscal sustainability, warning that the country must preserve market confidence even as it increases public spending to support economic recovery.

In a proposal submitted on Thursday to the Council on Economic and Fiscal Policy (CEFP)—the body that shapes Japan’s long-term fiscal and economic strategy—the panel members emphasized that Japan must balance growth-boosting expenditure with responsible financial management.

Economic Pressures Mount as Growth Contracts

Japan’s economy shrank during the third quarter, underscoring growing concerns about the country’s fragile post-pandemic recovery. At the same time, inflation remains elevated at around 3%, driven largely by rising food prices. These twin pressures, the advisers said, make it essential for the government to pursue “necessary and sufficient” fiscal support focused on crisis management, innovation, and productivity-enhancing sectors.

However, they warned that increased spending cannot come at the expense of long-term stability. Japan’s public debt—already the highest among major economies when measured against GDP—must be addressed through more careful policy planning.

Market Trust Seen as Crucial to Japan’s Fiscal Health

The advisers stressed that maintaining fiscal sustainability and market trust is “most important” as the government navigates current economic challenges. The proposal urges the administration to cut inefficient or wasteful expenditures and adopt a more disciplined approach to public finances.

In addition to working toward a steady decline in Japan’s debt-to-GDP ratio, policymakers should closely monitor financial conditions, including interest rates, the yen’s movements, and stock market trends, they said.

Their comments come amid investor concerns that Prime Minister Sanae Takaichi’s ambitious spending plans may increase government borrowing, potentially pushing government bond yields higher and putting renewed pressure on the yen. Government bond prices have fallen recently, reflecting market expectations of more debt issuance and persistent inflation.

Influential Economists Back Call for Fiscal Discipline

The proposal was backed by four private-sector CEFP members, including former Bank of Japan Deputy Governor Masazumi Wakatabe and economist Toshihiro Nagahama, both widely known as key reflationist voices supporting pro-growth monetary and fiscal policies.

While they continue to favor government spending that stimulates growth, their joint statement highlights the need to balance such spending with credible fiscal management. Their recommendations will play an important role in CEFP discussions as Japan drafts its next fiscal framework and long-term economic policy roadmap.