By Makiko Yamazaki and Tamiyuki Kihara
TOKYO, Oct 9 (Reuters) - Japan's government said on Friday it would reboot its spending review, widening scrutiny of tens of billions of dollars in public funds and subsidies as it seeks funding sources for Prime Minister Sanae Takaichi's costly policy pledges.
The renewed push under Japan's DOGE initiative, modelled on the US Department of Government Efficiency, follows a first review of special tax measures earlier this year that yielded just three abolition
proposals out of roughly 120 tax breaks reviewed by ministries.
The lacklustre outcome has increased pressure on the government to take a more aggressive approach as it seeks funding sources for a planned cut in the consumption tax on food from April 2027, while also facing rising spending demands for defence and industrial policy.
The latest round will focus on Japan's 201 special-purpose government funds that collectively are estimated to hold balances of around 7 trillion yen ($44.35 billion) at the end of the next fiscal year.
The latest review calls for idle or long-unused money in public funds to be returned to the national treasury, while requiring stricter cost-benefit assessments of subsidy programmes using external experts and evidence-based policymaking.
The plan comes as the benchmark 10-year Japanese government bond yield has hit multi-decade highs on concerns Takaichi's spending plans may lead to increased debt issuance and strain Japan's worsening finances.
The findings of the review are expected to feed into year-end tax reform talks and budget negotiations, where the government faces even more pressure to show how it will pay for campaign promises while maintaining market confidence in Japan's fiscal management.
"Takaichi has high hopes for the DOGE review as a source of new revenue, as the funds are large. They could provide a meaningful funding source," a government source said on condition of anonymity.
In efforts to shed her image as a reflationist who favours stimulating the economy through heavy government spending, Takaichi has vowed to cap new debt issuance at around 40 trillion yen, even as spending requests for next year's budget hit a record 143 trillion yen.
But Keiji Kanda, a senior economist at the Daiwa Institute of Research, said cutting funds and subsidies to finance a consumption tax cut risked shifting resources from supply-side measures to demand stimulus.
"If the government's priority is to strengthen Japan's growth potential, directing fiscal resources toward investment would be more effective and less inflationary," he added.
($1 = 157.8500 yen)
(Reporting by Makiko Yamazaki and Tamiyuki Kihara; Editing by Jamie Freed)
