Key Takeaways
- Canada's federal budget deficit is projected to be substantially larger than last year, potentially reaching $80 billion for the current fiscal year, primarily due to the impact of US tariffs and new government spending.
- Yoshimasa Hayashi, Japan's Chief Cabinet Secretary, is set to formally declare his candidacy for the Liberal Democratic Party (LDP) leadership race on Tuesday, with expectations of securing support from the ex-Kishida faction.
- The LDP leadership election, scheduled for October 4, follows Prime Minister Shigeru Ishiba's resignation and the ruling coalition's recent loss of its parliamentary majority, signaling significant political shifts in Japan.
- Canadian Prime Minister Mark Carney has introduced an "austerity and investment" approach, including a $5 billion fund and a "Buy Canadian" policy, to bolster the economy against trade war impacts and diversify away from a heavy reliance on the US market.
Canada is facing a significantly expanded federal budget deficit, with Prime Minister Mark Carney indicating that the shortfall will be substantial and larger than the previous year, primarily driven by ongoing US tariffs and new government expenditures. Economists are forecasting the deficit could climb to as high as $80 billion, or 2.5% of GDP, for the current fiscal year, a considerable increase from the estimated $48 billion for fiscal year 2024-25. Some projections even place the deficit between $70 billion and $90 billion.
The ballooning deficit is attributed to several factors, including the cancellation of the digital services tax, the cessation of retaliatory tariffs on US goods, and billions of dollars committed to support sectors severely impacted by the trade dispute with the United States. Prime Minister Carney has pledged an "austerity and investment" budget, aiming to balance the operating budget by 2028-2029 through a directive for government departments to identify 15% in savings over the next three years. To mitigate the economic fallout from the trade war, the government has also announced a $5 billion fund to help companies adapt and diversify, alongside a new "Buy Canadian" policy for federal procurements. The ongoing trade tensions with the US are contributing to slowing business investment and rising unemployment in Canada (CADX).
Meanwhile, in Japan, the political landscape is heating up as Yoshimasa Hayashi, the current Chief Cabinet Secretary and a prominent figure within the Liberal Democratic Party (LDP), prepares to officially announce his entry into the party's leadership contest on Tuesday. Hayashi's bid is expected to garner crucial support from members of the ex-Kishida faction, a group previously led by former Prime Minister Fumio Kishida, with whom Hayashi recently met. This will be Hayashi's third attempt at the party presidency, having previously run in 2012 and 2024.
The LDP leadership election, scheduled for October 4, will determine the successor to outgoing Prime Minister Shigeru Ishiba, who resigned after the ruling LDP-Komeito coalition lost its majority in both chambers of parliament. The party has opted for a "full-scale vote" format, which will grant equal weight to sitting parliamentarians and grassroots party members, potentially favoring candidates with broader public appeal. Other notable contenders in the race include former LDP Secretary-General Toshimitsu Motegi and former economic security minister Takayuki Kobayashi. The incoming leader will face the challenge of navigating a minority government and addressing key voter concerns such as inflation. The outcome of this election is closely watched for its potential impact on Japan's economic and diplomatic policies (JPYX, NKY).
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.