After two severe shocks – the 2008 global financial crisis and the 2011 Great East Japan Earthquake – Japan fell into recession for the third time in five years. The public debt ratio has risen steadily for two decades, to over 200% of GDP. Strong and protracted consolidation is therefore necessary to restore fiscal sustainability, which is Japan's paramount policy challenge. However, this will slow nominal GDP growth, making fiscal adjustment still more difficult. Hence, exiting deflation and boosting Japan’s growth potential are key to addressing the fiscal predicament. In this light, the new government’s resolve to revitalise the economy through a three-pronged strategy combining bold monetary policy, flexible fiscal policy and a growth strategy, is most encouraging.