Japan plans $189 billion new debt issuance in next year's budget, draft shows

Japan plans to issue new government bonds worth around $189 billion to fund a record-size budget for next fiscal year, a draft reviewed by Reuters showed on Wednesday, underscoring the administration's expansionary fiscal policy stance.

The annual budget, to be finalised on Friday, will be the first to be compiled by Prime Minister Sanae Takaichi, who has made "proactive" spending a flagship of her economic policy.

The estimated bond issuance of around 29.6 trillion yen ($189.55 billion) for the 2026 budget would exceed the planned 28.6 trillion yen issuance for the current fiscal year, the draft showed, confirming an earlier report by public broadcaster NHK.

The total size of next fiscal year's budget will likely be around 122.3 trillion yen, exceeding this year's 115.2 trillion yen, a new record, the draft showed.

Tax revenues will likely rise to around 83.7 trillion yen from an estimated 80.7 trillion yen in the current fiscal year, the draft showed, hitting a record but not enough to finance rising social welfare, defence and debt-servicing costs.

The huge spending will come on top of a 21.3 trillion yen stimulus package, compiled in November and funded by a supplementary budget for the current fiscal year, that focused on cushioning the blow to households from rising living costs.

Concerns about debt oversupply have pushed up bond yields, with the yield on the 30-year bonds rising 2.5 basis points to 3.45% on Wednesday to hit another record high.

Takaichi, since taking office in October, has stressed the need to focus on revitalising the economy and signaled watering down the government's target for restoring Japan's finances.

But her administration has toned down talk of aggressive fiscal spending as bond yields rose.

In an interview with the Nikkei newspaper published on Tuesday, Takaichi said the government will not resort to "irresponsible" debt issuance or tax cuts. She also said Japan's debt-to-GDP ratio, while improving as a trend, remained high.

($1 = 156.1600 yen)

-Takaya Yamaguchi/Reuters