New bond issuance increases by 75%! Japan plans to issue 11.7 trillion yen in government bonds to finance economic stimulus plans, continuing to worry about the long-term fiscal situation.

The Japanese government plans to rely more on issuing new bonds to finance its comprehensive economic stimulus plan, with the size of new bonds exceeding the level of the previous fiscal year. Reports suggest that the supplementary budget for the 2025 fiscal year is estimated to be around 18.3 trillion yen. According to a document seen by the media on Thursday, the supplementary budget of approximately 18.3 trillion yen will be financed by issuing an additional 11.7 trillion yen of government bonds. The Japanese government also plans to use 2.9 trillion yen in tax surplus, around 1 trillion yen in non-tax revenue, and approximately 2.7 trillion yen in unused funds from the previous fiscal year to control the borrowing size. However, the increase in debt size is still much higher than the 6.7 trillion yen needed to finance the economic plan of former Prime Minister Yoshihide Suga last year, with an increase of 75%. The Japanese government plans to rely more on bond issuance for economic stimulus funding The supplementary budget is expected to be approved by the Japanese government cabinet on Friday. This supplementary budget highlights the challenge that Prime Minister Kishida Fumio faces in balancing his pro-stimulus stance with maintaining fiscal responsibility targets. The Japanese government approved a comprehensive economic stimulus package worth 21.3 trillion yen at a cabinet meeting last Friday, marking the largest economic stimulus measure by the Japanese government since the outbreak of the pandemic. The economic stimulus package covers a wide range of areas from inflation relief to strategic industrial investment. The Japanese government plans to allocate 2.9 trillion yen to address inflation, including utility subsidies, regional support funds, and income tax and gasoline tax reductions, as well as providing 980 billion yen to help small and medium enterprises increase wages. The plan also allocates 1.5 trillion yen in investment funds for key sectors like artificial intelligence and shipbuilding, and around 1.3 trillion yen for defense spending. Allocation of funds in Japan's comprehensive economic package Concerns about Japan's long-term fiscal situation under Prime Minister Kishida Fumio's administration continue to weigh on investors. Earlier this month, Japan's long-term government bond yields rose to over twenty-year highs, while the yen remained relatively weak. As of writing, the USD/JPY exchange rate is at 155.95; the 20-year government bond yield is at 3.329%, and the 30-year government bond yield is at 3.677%. To stabilize market sentiment, Kishida Fumio signaled last week that the total issuance of government bonds for this fiscal year will be lower than the previous year. Data shows that in the 2024 fiscal year, Japan issued a total of 42.1 trillion yen in government bonds for the initial budget and supplementary budget. With the addition of 11.7 trillion yen in debt, Japan's total government bond issuance for the 2025 fiscal year will reach 40.3 trillion yen, a decrease of about 4.3% from the previous year.