The Japanese government is expected to allocate an additional budget of 112 billion US dollars! Fiscal worries are intensifying, leading to a decline in bond and currency markets.

Japanese Prime Minister Sanae Takaichi is set to launch an economic stimulus package funded by an additional budget, which is about 27% higher in scale compared to the spending plan announced by her predecessor Shizo Abe a year ago, highlighting her determination to pursue expansionary fiscal policies. According to documents, the stimulus package is expected to combine tax cuts and special account expenditures, leading to general account expenditures reaching 17.7 trillion yen (approximately 112 billion USD). This proposed additional budget size exceeds the 13.9 trillion yen proposed by Shizo Abe last year. Insiders say that with a larger additional budget size, the issuance of new government bonds will also exceed last year's levels. Additionally, the documents show that the total value of the stimulus package, including some items already included in the budget, will reach 21.3 trillion yen. The increase in general account expenditures will require a larger-scale additional budget, including more government bond issuance, further exacerbating Japan's debt burden, which is already at the highest level among developed countries. According to data from the International Monetary Fund, Japan's total government debt is expected to reach 230% of its economic size this year. With the Bank of Japan having raised interest rates three times since March 2024, debt servicing costs are expected to continue to rise. Concerns over rising debt levels have led to an increase in Japanese government bond yields. As of the time of writing, the 20-year Japanese government bond yield has risen by nearly 5 basis points to 2.856%; while the 30-year and 40-year government bond yields have both risen by over 4 basis points to 3.382% and 3.749% respectively. The 5-year and 10-year government bond yields have also risen to their highest levels since 2008 earlier this week. Meanwhile, the yen has further weakened, with the USD/JPY exchange rate rising above 157. As the Japanese government seeks to address various challenges, including persistent inflation, along with private sector spending, the overall impact of the stimulus package is expected to swell to around 42.8 trillion yen. Despite the Bank of Japan's plans to continue raising interest rates in the coming months, GDP data released on Monday provided support for Sanae Takaichi's implementation of a large-scale stimulus plan. The data shows that Japan's real GDP in the third quarter fell by 1.8% year-on-year, marking the first negative growth in six quarters.