The Zhitong Finance App learned that against the backdrop of Japan's deteriorating fiscal situation already driving up bond yields, Japanese Prime Minister Takaichi Sanae promised on Monday to “control” bond issuance and act quickly in the event of market turmoil to appease investors who are concerned about the deterioration of Japan's public finance situation.
In her policy address to the National Assembly, Sanae Takaichi said, “Fiscal sustainability is clearly a prerequisite for implementing our 'responsible and proactive' fiscal policy.” She said that while increasing spending to enhance economic growth potential, the Japanese government will continue to pursue fiscal sustainability, including re-examining existing tax incentives and subsidy policies.
The above remarks reflect Tokyo's growing concerns about rising yields on Japanese treasury bonds. Japan's public debt is about twice the size of its total economy, making it the highest among developed countries. As the Bank of Japan raises interest rates and gradually reduces the size of bond purchases, financing costs are rising.
On Monday, the yield on Japan's 30-year treasury bonds hit a record high of 4.235% due to market concerns about increased risk of debt issuance and inflation concerns caused by the Middle East war. Higher bond yields, on the other hand, will increase the financing costs of Takaichi Sanae's spending plan.
Takaichi Sanae said that the Japanese government will attract private capital to invest in the economic growth sector by “implementing large-scale, long-term fiscal expenditure in a carefully planned and predictable manner.” At the same time, she said that the government will control the scale of annual bond issuance and adjust the loan scale according to tax revenue, interest rates, debt financing costs, and economic and market developments.
Sanae Takaichi added, “If there is an unexpected change in the economy and market, we will carefully review the impact and respond flexibly if necessary.” However, she did not elaborate further on specific measures.
As market concerns about the financial health of advanced economies continue to heat up and drive global bond yields generally upward, the focus of debate in the Japanese parliament is expected to shift to fiscal policy. The Japanese government is also preparing next year's budget, and various government departments are applying for record spending.
The Japanese government's top priority right now is to push for the passage of relevant legislation supporting the Takaichi Sanae Plan. The plan plans to implement tax cuts on food for a period of two years starting in April next year, but since the government has yet to explain in detail how to close the resulting fiscal revenue gap, the plan has already triggered a sell-off of bonds.
Furthermore, Takaichi Sanae said that the Japanese government will reserve multi-year funding for strategically important economic security initiatives. Sanae Takaichi said, “We will steadily implement various policies, get things done one by one, and communicate fully and carefully with the public and the market.”