Kishida Says Caution Needed in Any Mulling of Perpetual Bonds

(Bloomberg) -- Caution is needed if considering making some of the Bank of Japan’s bond holdings perpetual, according to Japan’s Prime Minister Fumio Kishida. 

“From the perspective of stable financing and retaining trust in Japan’s fiscal policy, consideration of these ideas needs to be cautious,” said Kishida, responding to opposition party member Kohei Otsuka’s questions on the subject in parliament Wednesday.

Otsuka’s Democratic Party For the People has suggested within their policy platform that part of the BOJ’s enormous bond holdings should be made perpetual. 

The BOJ has assets that surpass the country’s economy in size as a result of its massive asset buying program. But if some of the bank’s bond holdings become perpetual, it would relieve the government from having to pay back the principal, thus easing its already major debt-servicing costs. 

Bank of Japan Total Asset Holdings Surpass Size of Japan’s GDP

Otsuka’s party also suggests the creation of a special bracket of debt to fund education. The party argues that 5 trillion yen ($44.1 billion) a year should be funneled toward education for a decade. That would double Japan’s current budget for education, science and technology, an increase the party says would boost future growth and tax revenues.

Still, moves like this could rattle investor trust in Japan’s fiscal future. The nation’s finance ministers, including former long-term holder of the position Taro Aso, have repeatedly emphasized the importance of market participants believing that Japan will eventually pay back its debts. 

Shunichi Suzuki, Aso’s replacement as finance minister, has already reiterated the country’s goal of balancing its budget by the fiscal year 2025, despite the government’s own projections that it can’t achieve that target.

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