Japan to issue over $73.5 billion in new bonds to fund stimulus

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

Takaichi’s extra budget will be financed by additional bond issuance of at least ¥11.5 trillion ($73.5 billion), according to the people. The Finance Ministry now sees tax revenue this fiscal year reaching a record ¥80.7 trillion and providing a surplus of around ¥3 trillion the government can use to limit its borrowing needs, they said.

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.

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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, includes ¥17.7 trillion of fresh spending that needs financing through the extra budget. That’s the largest amount 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.

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