"Not issuing new bonds to supplement the budget "bill": Japanese Prime Minister Koizumi soothes the bond market, relying on tax revenue surplus to free up space for issuing bonds"

Japanese Prime Minister Takashi Nagai said on Monday that the government will not increase the issuance of national bonds on a calendar year basis to finance supplementary budget, aiming to alleviate concerns in the market about fiscal discipline. Nagai revealed that the total amount of the supplementary budget is slightly over 3 trillion yen (approximately 18.9 billion USD), which is basically in line with the scale disclosed by Finance Minister Gomei Katayama last Friday. The supplementary budget is expected to be submitted to the Diet for deliberation as early as next week. Nagai stated that part of the national bonds issuance planned in the previous fiscal year budget is expected to be cancelled after taking into account higher than expected tax revenues and other unused expenditures, allowing the government to raise funds without changing the amount of bonds issued according to the calendar benchmark. "We believe that this can be implemented without affecting the government bond market," Nagai said. From "no need for supplementary budget" to "rapid preparation" within a month At the time of Nagai's statement, concerns about fiscal expansion in the market persist. Previously, driven by concerns about inflation related to the war, global yields were generally rising, and Japanese government bonds also faced a round of selling. By the end of trading on Monday afternoon in Tokyo, the yield on Japanese 10-year government bonds was 2.69%, slightly lower than recent highs, mainly due to expectations of de-escalation in the Middle East conflict. Nagai had previously insisted several times that there was no need to prepare a supplementary budget, but his position changed last week. This turnaround indicates that just one month after the Diet passed the annual budget, the government has already started to loosen its purse strings. However, this change has been positively received by the public. A poll by the Yomiuri Shimbun over the weekend showed that 63% of respondents were positive, with only 18% having a negative attitude. Utilizing excess tax revenue to "move around" space for bond issuance This arrangement, without increasing the amount of bonds issued according to the calendar benchmark, helps improve investors' perception of Nagai's fiscal plan. Japan is currently reviewing the revenue and expenditures data from the previous fiscal year in preparation for the final accounts in June. Nagai also stated that steadily reducing the ratio of Japanese government debt to Gross Domestic Product (GDP) would also help maintain market confidence. The Japanese government has clearly stated that the purpose of the supplementary budget is to cushion the economic impact of the Iran war, not for economic stimulus. Energy subsidies will be a core part of it. Nagai has requested the government to prepare the budget in a way that "ensures that summer electricity bills are lower than last year's." In addition, the government will provide gasoline subsidies, with the price cap set at around 170 yen per liter. Nagai said the Cabinet will approve the use of reserve funds on Tuesday for electricity and natural gas subsidies, costing approximately 500 billion yen. "We will provide subsidies for electricity and gas bills during the high-demand period from July to September," Nagai said. She added that through subsidies, ordinary families can save about 5,000 yen in the three summer months. "The situation in the Middle East remains uncertain, and we will continue to flexibly take necessary measures, not limited to electricity and gas subsidies," she said. Nagai also added that the government can ensure oil supply from the end of this year to next spring. Nagai still enjoys relatively high approval ratings. The latest poll by the Yomiuri Shimbun shows that 64% of respondents support her administration. Although her approval rating is high, disruptions in the supply chain and the economic damage caused by the Iran war are evidently the most important issues for voters, and will continue to test Nagai's governing ability.