Japan’s Stimulus Reportedly Adding $192 Billion to Debt Pile
(Bloomberg) -- Japan plans to issue $22.1 trillion yen ($192 billion) in bonds to help pay for another extra budget in the pandemic, as Prime Minister Fumio Kishida looks to shore up the recovery before next year’s elections, the Nikkei newspaper reported Wednesday.
Some 6 trillion yen carried over from previous stimulus and another roughly 6 trillion yen in unexpected tax revenue weren’t enough to cover the general expenditures of a 36 trillion yen extra budget put together to finance Kishida’s stimulus plan, the Nikkei said, without identifying where it got the information.
With the new borrowing plan, Kishida is signaling his willingness to add more to Japan’s growing mountain of debt as he lays the groundwork for what he says will be a new kind of capitalism.
Some analysts have questioned the need for so much spending now, given that the worst of the pandemic appears over and the economy was forecast to rebound on its own.
“This is big but not totally unexpected given the size of the economic package,” said Chotaro Morita, chief rates strategist at SMBC Nikko Securities in Tokyo. “The question is how they will spend this much money.”
Kishida, who had been known for being fiscally cautious, surprised investors last week by unveiling a record fiscal package of 56 trillion yen, following a report days earlier that the economy shrank last quarter for the fifth time in eight quarters.
Still, with vaccination rates now over 75% and restrictions on economic activity largely lifted, the recovery already looked poised to pick up.
At the same time, the government failed to spend more than 30 trillion yen it budgeted for stimulus last year, suggesting that it may be difficult to inject all of the new money into the economy quickly. Japan’s Cabinet is expected Friday to approve the budget and detail its spending priorities.
The plan sketched out last week includes cash payments to households with children, handouts for smaller companies, and higher salaries for caregivers on government payrolls.
New borrowing will add to the developed world’s heaviest government debt burden. Even without the latest stimulus factored in, the International Monetary Fund calculates that Japan’s government debt will reach 257% the size of GDP in 2021.
Still, the Bank of Japan’s yield curve control program, which involves purchasing government debt, will likely keep yields within a tight band, despite the new issuance.
The BOJ’s says the primary purpose of its bond purchases is to help spur price growth, but the program plays a key role in keeping the government’s borrowing costs down.
Read more: Japan Shores Up BOJ’s 2% Price Target After Fed Tapering
Given Japan’s low inflation, Governor Haruhiko Kuroda earlier this month underscored his commitment to continued monetary easing, even as global peers start reining in pandemic-era stimulus.
“This is probably the last opportunity for an extra budget before next year’s national election -- that’s one of the main reasons for its size,” said SMBC’s Morita. “Depending on how the money is used, doubt over Japan’s fiscal management could grow among credit ratings firms.”
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