Japan could sell more bonds to fund PM Kishida’s upcoming stimulus package – Opinion

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Japan’s next Prime Minister Fumio Kishida may have no choice but to sell more government bonds to fund his pandemic relief plan worth hundreds of billions of dollars, even if it recovers the remaining money from previous stimulus programs.

Former foreign minister known as a proponent of tax reform, Kishida won the ruling party’s leadership race on Wednesday, assuring him to be chosen as prime minister next week due to the party’s majority in parliament .

Eager to give the pandemic-stricken economy a quick boost, Kishida pledged to compile a stimulus package worth tens of billions of yen – at one point, marking a size of approximately 30 trillion yen ($ 270 billion).

Part of the package could be funded by moving nearly 20 trillion yen left over from past stimulus programs, although that is unlikely to be enough on its own, analysts say.

“If Kishida wants a 30 trillion yen package, he has to issue around 9 to 12 trillion yen of new bonds,” said Chotaro Morita, chief bond strategist at SMBC Nikko Securities.

Noriatsu Tanji, chief bond strategist at Mizuho Securities, predicted a new bond issue for less than 10,000 billion yen.

This would come on top of a record 221 trillion yen of bonds due to be issued in the current fiscal year through March 2022, straining Japan’s already shattered finances and casting doubt on the Kishida’s image as a fiscal conservative who has long called for the need to reign over the country’s massive public debt.

Realizing the need to garner votes in general elections later this year, Kishida also called for distributing more wealth to low- and middle-income households through payments.

But details on how to fund the milestones are missing. Kishida has ruled out raising sales tax in Japan for about a decade.

While he proposed to raise the tax rate on financial income, an increase to 30% from the current 20% only increases tax revenue by around 400 billion yen, according to private estimates.

The Ministry of Finance, in charge of developing debt issuance plans and the state budget, is preparing for the possibility of having to issue more bonds to fund Kishida’s spending list.

While much will depend on the size of the relief plan, the actual spending to meet the immediate needs to help households and businesses affected by the pandemic could be around 5-6 trillion yen, a Reuters told Reuters. high level government source.

The remainder could consist of non-expenditure items such as loan programs, government credit guarantees, and a reserve of funds that can be used for several years.

“The additional spending would be funded by issuing additional bonds,” the government source said on condition of anonymity due to the sensitivity of the matter.

“It’s possible to issue more bonds” without triggering a surge in yields thanks to the Bank of Japan’s ultra-relaxed monetary policy, he said.

The bond market also remains bullish about the risk of a surge in bond yields due to the presence of the BOJ, which has committed to capping long-term borrowing costs to zero as part of its control policy. of the yield curve (YCC).

BOJ Governor Haruhiko Kuroda said on Thursday that a combination of heavy budget spending and ultra-low interest rates had resulted in “positive synergy” for the economy.

“Regardless of the fiscal, regulatory or other policies pursued by the new government, the BOJ will continue to maintain an extremely accommodating monetary policy in order to achieve its objective of 2% price stability as soon as possible,” he said. he said.-Reuters


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