By Leika Kihara
TOKYO (Reuters) -Prime Minister Sanae Takaichi ruled out on Wednesday the possibility that Japan could face a British-style "Truss moment", or loss of market confidence stemming from her expansionary fiscal policy.
Prices of Japanese government bonds have fallen in tandem with the yen currency last week, as Takaichi's big spending plan and preference for low interest rates stoked fears of rising debt and prolonged, elevated inflation.
Takaichi told parliament the government stood ready
to take action against speculative yen falls or volatile moves in long-term interest rates.
"We'll keep a close eye on whether currency moves reflect economic fundamentals, or are driven by speculative moves, and take necessary action," she said.
Takaichi said her administration's economic stimulus package was not "reckless spending" and added that the government would strive to lower Japan's ratio of debt to gross domestic product, keeping a close eye on bond yield moves.
"Japan isn't in a situation where it will face something similar to a Truss shock" she said, because of it runs a current account surplus. "What's most important for me is to ensure Japan's fiscal sustainability."
The remarks came in response to an opposition lawmaker's query whether Japan could face a situation resembling that of Britain in 2022, when then Prime Minister Lizz Truss unveiled unfunded tax cuts that caused a spike in bond yields and a plunge in the pound.
Last week, Takaichi's cabinet approved a stimulus package of 21.3 trillion yen ($136 billion) that includes general account outlays of 17.7 trillion yen, far exceeding the previous year's 13.9 trillion, for the largest stimulus since the COVID-19 pandemic.
On Wednesday, broadcaster TV Asahi said Japan plans to issue more than 11 trillion yen in additional government bonds this fiscal year to fund part of the package.
That would be more than half the supplementary budget of about 17.7 trillion yen earmarked to fund the package, and far exceeds last year's additional bond issuance of about 6.7 trillion, the broadcaster added.
($1=156.3800 yen)
(Reporting by Leika Kihara; additional reporting by Kantaro Komiya; Editing by Himani Sarkar, Tom Hogue and Clarence Fernandez)
