"National debt rises again"…Japan to finance more than half of supplementary budget with government bonds

Government bonds of 11.7 trillion yen to be issued for Japan's supplementary budget

Takaichi: "Fiscal soundness requires growth"

Concerns about fiscal deterioration increasingly spreading

40-year government bond yields hit record high

The Japanese government has decided to finance more than half of this year's supplementary budget by issuing government bonds. There are projections that government bond yields will rise further amid concerns about worsening public finances.

According to the Nihon Keizai Shimbun on the 27th, Japan is preparing an 18 trillion yen supplementary budget this year and is expected to issue an additional 11.7 trillion yen in government bonds. It plans to fund more than half of the necessary resources with government bonds. This far exceeds last year's supplementary budget (13.9 trillion yen) and the government bond issuance at that time (6.7 trillion yen).

Japan's tax revenue this year is expected to be revised upward from the initial forecast (77.8 trillion yen) to a record high of 80.7 trillion yen, influenced by wage increases that boosted income tax. Nevertheless, the Takaichi Cabinet, which has advocated an "active fiscal" stance, has prepared the largest supplementary budget since the COVID-19 pandemic and decided to cover the shortfall with government bonds.

Of the newly issued government bonds, deficit-covering government bonds are expected to be in the 8 trillion yen range. The scale of deficit-covering bonds is more than double last year's supplementary budget figure of 3.61 trillion yen. Prime Minister Takaichi emphasized that total government bond issuance this year is at the level of around 40 trillion yen, less than last year's 42.1 trillion yen, but critics point out this largely reflects the previous cabinet of Shigeru Ishiba having restrained initial bond issuance for this year.

In a ruling-opposition leaders' debate at the Diet the previous day, Prime Minister Takaichi rebutted opposition criticism of "careless fiscal policy," saying, "Unless we create a growing economy, fiscal soundness will never be achieved." Regarding the "Truss shock" in the U.K., where bond yields surged amid concerns about fiscal deterioration, he mentioned differences in the current account balances between Japan and the U.K. and argued, "There is no situation in which a Truss shock would occur."

In a 40-year government bond auction conducted by the Ministry of Finance the previous day, the winning bid yield was annual 3.555%, the highest since its first issuance in 2007. The secondary market showed the same trend. On the 20th, the 40-year government bond yield reached an all-time high of annual 3.745%. The Nihon Keizai Shimbun commented that "There are strong concerns that the Takaichi administration's large-scale economic policies will lead to massive government bond issuance, worsening the supply-demand balance for government bonds."

Tokyo = Correspondent Kim Il-gyu black0419@hankyung.com