By Leika Kihara
TOKYO (Reuters) – Japanese Prime Minister Shigeru Ishiba’s government plans a new large spending package, moving away from his earlier focus on fiscal discipline, which will likely increase borrowing.
Deputy Chief Cabinet Secretary Kazuhiko Aoki announced that the upcoming package will be larger than last year’s stimulus.
On Tuesday, Ishiba stated that the new package would be funded by a supplementary budget exceeding last year’s 13 trillion yen ($87 billion).
This spending approach sets Japan apart from other advanced nations that have mostly ended major stimulus efforts.
The plan coincides with the Bank of Japan raising interest rates from near-zero, which will increase the cost of funding Japan’s already high public debt.
While the Bank of Japan is expected to raise rates gradually, concerns about potential new debt issues may affect bond market confidence.
Katsutoshi Inadome from Sumitomo Mitsui Trust Asset Management mentioned that there is growing caution among investors regarding Japanese government bonds (JGBs) due to rising debt concerns.
Analysts anticipate that the government may need to issue over 10 trillion yen in new debt to support the new budget.
Japan typically uses supplementary budgets for emergency spending, but since the COVID-19 pandemic, these budgets have significantly increased.
Once a proponent of strict fiscal policies, Ishiba is now focused on revitalizing the economy and combating deflation.
While most analysts expect his coalition to stay in power after the October 27 election, some foresee significant voter pressure for increased spending.
Japan’s public debt is the highest among advanced nations, with government spending at 42.3% of GDP, compared to 37.0% in the U.S. and an average of 41.2% in the G7.
(1 USD = 149.27 yen)
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