Analysis: Japan may sell more bonds to fund next premier Kishida’s stimulus package

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  • NextPrime Minister Kishida wants 30 trillion yen relief package
  • Analysts say government may need to issue 10 trillion yen in new bonds
  • Can sell more debt to pay extra expenses – government sources
  • Actual expenditure in relief package could be 5-6 trillion yen – source
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TOKYO, Oct 1 (Businesshala) – Japan’s next prime minister, Fumio Kishida, may have no choice but to sell more government bonds for a hundreds of billions of dollars in pandemic-relief package, even if it is left over from previous stimulus programs. Put the money together. .

A former foreign minister known as a proponent of fiscal reform, Kishida won the ruling party’s leadership race on Wednesday, assuring him to be elected as prime minister next week due to the party’s majority in parliament.

Eager to give a quick boost to an economy hit by the pandemic, Kishida pledged to compile a stimulus package worth several tens of trillions of yen – at one point marked the size of about 30 trillion yen ($270 billion).

Analysts say some of the package could be funded by moving the roughly 20 trillion yen left over from previous stimulus programs, although this alone will not be enough.

“If Kishida wants a package of 30 trillion yen, it needs to issue new bonds worth about 9-12 trillion yen,” said Chhotaro Morita, chief bond strategist at SMBC Nikko Securities.

Noriyatsu Tanji, chief bond strategist at Mizuho Securities, predicted fresh bond issuances worth less than 10 trillion yen.

This would add a record 221 trillion yen in bonds to be issued in the current fiscal year until March 2022, raising doubts over Japan’s already poor finances and Kishida’s image as a fiscal conservative that has long called for the need to govern. The country’s huge public debt.

Noting the need to lure votes in the general election due later this year, Kishida has also called for more money to be distributed to low- and middle-income families through payments.

But they do not have information on how to fund these steps. Kishida has refused to raise Japan’s sales tax for nearly a decade.

While he proposed raising the fiscal income tax rate, the increase from the current 20% to 30% increased tax revenue by about 400 billion yen, according to private estimates.

The finance ministry, in charge of preparing debt issuance plans and the state budget, is open to the prospect of issuing more bonds to fund Kishida’s spending wish-list.

While much will depend on the size of the relief package, the actual expenditure to meet the immediate needs of pandemic-hit households and firms could be around 5-6 trillion yen, a senior government source told Businesshala.

The balance can include non-spending items such as loan programs, government loan guarantees and a pool of money that can be tapped over many years.

“The additional expenditure will be funded by issuing additional bonds,” the government source said on condition of anonymity due to the sensitivity of the matter.

“It is possible to issue more bonds” without raising yields thanks to the Bank of Japan’s ultra-easy monetary policy, he said.

The bond market also remains bullish on the risk of a spike in bond yields due to the presence of the BOJ, which has promised to keep long-term borrowing costs at zero under its Yield Curve Control (YCC) policy.

BOJ Governor Haruhiko Kuroda said on Thursday that the combination of large fiscal spending and ultra-low interest rates has resulted in a “positive synergy” for the economy.

“Whatever fiscal, regulatory or any other policies the new government adopts, the BoJ will maintain an extremely lenient monetary policy to achieve its 2% price stability target as soon as possible,” he added.

($1 = 111.3000 yen)

Reporting by Tetsushi Kajimoto and Leika Kihara; Editing by Kim Coghilla

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