Japan to issue $75 billion in new bonds to fund economic package

Japanese Prime Minister Sanae Takaichi’s government plans to issue more new bonds to fund its economic package than the corresponding amount last year, as concerns smoulder over the nation’s public finances and rising yields.

The extra budget, totalling about ¥18.3 trillion ($117 billion), will be funded by ¥11.7 trillion in additional bond issuance, according to a document seen by Bloomberg on Thursday. The government also expects to tap ¥2.9 trillion in tax revenue surpluses, roughly ¥1 trillion in non-tax revenue, and about ¥2.7 trillion in unused funds from the previous fiscal year to limit borrowing.

Still, the newly added debt load is considerably larger than the ¥6.7 trillion issuance needed to fund former Prime Minister Shigeru Ishiba’s set of economic measures a year ago. The extra budget is expected to be approved by the cabinet on Friday.

The extra budget plan underscores Takaichi’s challenge in balancing her pro-stimulus stance with a goal of staying fiscally responsible. Her package, unveiled last week, features the largest amount of fresh spending since pandemic restrictions were eased in Japan.

Concerns over Japan’s longer-term finances under Takaichi have kept investors on edge. Longer-dated government bond yields reached their highest in more than two decades earlier this month, while the yen has stayed relatively weak.

In an apparent attempt to reassure markets, Takaichi signalled last week that total bond issuance for the current fiscal year would come in below last year’s level. In fiscal 2024, Japan issued ¥42.1 trillion of bonds to fund both the initial and supplementary budgets combined.

After adding the ¥11.7 trillion, total debt issuance for the current fiscal year will reach ¥40.3 trillion, roughly 4.3% smaller than the previous year.

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