By Makiko Yamazaki
TOKYO, May 25 (Reuters) - Japan's government will compile an extra budget of some 3 trillion yen ($19 billion), Prime Minister Sanae Takaichi said on Monday, stoking concerns over fiscal expansion that could further strain the country's already-stretched finances.
The extra budget comes as the government decided to use roughly half of its 1 trillion yen contingency reserves to fund subsidies aimed at curbing utility bills, increasing the need to replenish reserves amid the risk of a prolonged
Middle East crisis.
Japan has also been extending separate subsidies to keep gasoline prices steady, a costly step that is quickly using up its contingency reserves as oil prices remain elevated.
Takaichi said the extra budget will be financed by new deficit-financing bonds, but added the measure could be implemented without affecting the bond market.
The calendar-based issuance of government bonds will remain unchanged from the original plan, as stronger tax revenues, non-tax income and expected underspending are likely to eliminate the need for around 3 trillion yen in deficit bonds that had been scheduled for issuance through June, she said.
The plan, first reported earlier this month, marks a reversal from her previous remarks ruling out the need for an additional budget.
A subsequent Reuters report that the government is likely to issue fresh debt as part of funding for the extra budget helped drive the yield on the benchmark 10-year Japanese government bond (JGB) to 2.8% last week, its highest since October 1996.
($1 = 158.9300 yen)
(Reporting by Makiko Yamazaki; Editing by Alison Williams and David Holmes)
