Post by : Rameen Ariff

Japan’s government, led by Prime Minister Sanae Takaichi, is preparing a major extra budget that relies heavily on new bond issuance, raising fresh questions about the country’s long-term financial health. The additional budget is worth around ¥18.3 trillion (USD 117 billion), according to documents reviewed by Bloomberg.

Out of this amount, ¥11.7 trillion will be raised through new government bonds—significantly higher than the ¥6.7 trillion added under former Prime Minister Shigeru Ishiba’s economic measures a year earlier. The cabinet is expected to officially approve the extra budget on Friday.

To reduce borrowing pressure, the government also plans to use ¥2.9 trillion from tax revenue surpluses, about ¥1 trillion from non-tax income, and around ¥2.7 trillion in unused funds left over from the previous fiscal year.

The latest economic package, announced last week, marks the largest round of fresh spending since Japan lifted its pandemic restrictions, reflecting Takaichi’s push for stimulus at a time when households and businesses continue to feel the strain of inflation and slow wage growth.

However, the expanded borrowing has renewed concerns among investors who are closely watching Japan’s rising bond yields and overall debt burden. Long-term government bond yields recently touched their highest level in more than 20 years, while the yen remains under pressure.

To calm the markets, Prime Minister Takaichi has stressed that Japan’s total bond issuance for the current fiscal year will remain lower than last year. Japan issued ¥42.1 trillion in bonds in fiscal 2024 across all budgets. With the new ¥11.7 trillion added, the current year’s total issuance will reach ¥40.3 trillion, about 4.3% less than the previous year.

Investors and analysts will now be watching how the government balances its economic support measures with commitments to fiscal discipline, especially as Japan’s public debt remains one of the highest among developed nations.

#Business News