By Leika Kihara
TOKYO (Reuters) – Japanese Prime Minister Shigeru Ishiba plans to create a large spending package, moving away from his earlier focus on fiscal discipline, which will likely require more borrowing.
The government aims to draft a package larger than last year’s 13 trillion yen ($87 billion) stimulus. This sets Japan apart from other advanced economies that have ended crisis-level spending.
As the Bank of Japan raises interest rates, the cost of servicing Japan’s public debt — already at twice the country’s GDP — may increase. Analysts warn that further borrowing could impact bond market confidence.
Katsutoshi Inadome from Sumitomo Mitsui Trust Asset Management noted that investors are wary of buying Japanese government bonds (JGBs) due to concerns about rising debt levels.
Analysts anticipate that Japan will need to issue over 10 trillion yen in new debt to support the upcoming supplementary budget, on top of an already planned 182 trillion yen in bond sales this fiscal year.
Previously, Japan used supplementary budgets for emergency funding, but since the COVID-19 pandemic, these budgets have expanded significantly, often funded by new debt.
Ishiba, who has shifted from advocating for reduced stimulus policies known as “Abenomics,” is currently focused on reviving Japan’s economy from deflation spanning three decades.
While the ruling coalition is expected to remain in power in the upcoming Oct. 27 election, there may be pressure on Ishiba to promise more spending to attract votes.
Japan has the highest public debt among advanced countries, with government spending at 42.3% of GDP, compared to 37.0% in the U.S. and 41.2% in the G7.
($1 = 149.2700 yen)
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