As the ‘‘third arrow’’ of Abenomics, a new growth strategy was announced publicly in June 2013. The Basic Policies for the Economic and Fiscal Management and Reform presented basic plans for Abenomics and outlined the growth strategy. Additionally, the Japan Revitalization Strategy provided detailed contents of the growth strategy and targets, such as the promotion of productivity. In June 2014, these two plans were revised. The revised plans targeted a stable demographic structure, maintenance of the population at approximately 100 million people in 50 years’ time,1 and promotion of women’s labor force participation.

On the other hand, to maintain credibility in Japan’s fiscal policy, the Cabinet approved basic directions for fiscal consolidation, the Basic Framework for Fiscal Consolidation: Medium-term Fiscal Plan, in August 2013. The plan states that the government’s fiscal consolidation target is to halve the ratio of the primary balance against Gross Domestic Product (GDP) between FY2010 and FY2015, achieve a primary surplus by FY2020, and steadily decrease the debt balance as a percentage of GDP after FY2020.

This study addresses the following two questions. First, is it possible to achieve the government’s medium-term fiscal targets by adopting the growth strategy of Abenomics? Second, what is the impact of the growth strategy on fiscal conditions in the long-run? The government provided responses to questions in Economic and Fiscal Projections for Medium to Long Term Analysis (July 2014) (EFP). EFP conducted projections using a large scale macro econometric model and concluded that, under optimistic assumptions, the target of halving the ratio of the primary deficit to GDP from the FY2010 rate by FY2015 is achievable by Abenomics. However, it insisted that further efforts are necessary to steadily reduce the ratio of debt to GDP. The ratio of debt to GDP is projected to be approximately 185.5% in FY2020 and to remain at that level thereafter.