Takashi Sanae plans to heavily borrow to implement a 17.7 trillion yen economic stimulus plan, causing Japanese bond yields to soar to a 20-year high.

According to informed sources, Japanese Prime Minister Sanae Takaichi's cabinet plans to issue more new bonds to finance her economic plan, with the scale exceeding the level of the same period last year. This has raised concerns about Japan's public finances and rising interest rates. Insiders said that Takaichi's supplementary budget will raise funds through the issuance of at least 11.5 trillion (US$735 billion) in additional bonds. They stated that the Ministry of Finance currently estimates tax revenue for this fiscal year to reach a record 80.7 trillion, providing a surplus of around 3 trillion that the government can use to limit borrowing requirements. Nevertheless, the new debt burden is still much higher than the 6.7 trillion issuance size needed for a series of economic measures a year ago by former Prime Minister Shigeru Ishiba. The supplementary budget is expected to be approved by the Cabinet on Friday. This supplementary budget highlights the challenge that Takaichi faces in balancing her pro-stimulus stance with maintaining fiscal responsibility goals. Her comprehensive plan announced last week includes 17.7 trillion in additional spending, which needs to be funded through the supplementary budget. This is the largest expenditure since the relaxation of COVID-19 restrictions in Japan. Concerns about Japan's long-term fiscal situation under Takaichi's leadership have unsettled investors. Earlier this month, long-term government bond yields reached the highest level in over 20 years, while the yen remains relatively weak. Takaichi appeared to try to reassure the market last week, stating that the total bond issuance for this fiscal year will be lower than last year. In the 2024 fiscal year, Japan issued a total of 42.1 trillion in bonds for the initial budget and supplementary budget.