Japan to issue $75 billion in new bonds to fund stimulus

The extra budget, totaling 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.

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 smolder over the nation’s public finances and rising yields.

The extra budget, totaling 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 signaled 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.

Last week, Takaichi unveiled an economic package targeting a wide range of issues from inflation relief to investment in strategic industries. The government earmarked ¥2.9 trillion for price measures, including utility subsidies, regional support funds as well as cuts for taxes on income and gasoline. Another ¥980 billion was set aside to help smaller firms raise wages.

It also allocated ¥1.5 trillion for investment in key sectors such as artificial intelligence and shipbuilding, while directing about ¥1.3 trillion toward defense spending, after Takaichi brought forward the time line for raising defense expenditures to 2% of GDP.