By Makiko Yamazaki and Takaya Yamaguchi
TOKYO, Aug 28 (Reuters) – Japan’s government aims to keep new government bond issuance to around 40 trillion yen ($251 billion) for the fiscal 2027 budget, Prime Minister Sanae Takaichi said in an interview with the Yomiuri newspaper.
Her comments came as Japan’s budget requests from government ministries and agencies for the next fiscal year are expected to exceed 130 trillion yen, setting a record for a fourth consecutive year. Kyodo News reported on Friday that the total could reach around 140 trillion yen.
In the interview, Takaichi cited the case of the fiscal 2025 budget, where a rise in tax revenue partially offset the extra burden of an extraordinary budget and allowed the government to keep new bond issuances below the previous year’s level at about 40 trillion yen.
“We will continue with the same approach going forward,” she said.
Takaichi’s government plans to incorporate into the initial budget spending that in recent years was often financed through supplementary budgets, a move that could inflate the headline expenditure in the initial budget.
While the 40 trillion yen issuance is equivalent to the fiscal 2025 budget, it is far larger than 32.7 trillion yen new debt issuance planned for the current fiscal 2026 budget.
“If Prime Minister Takaichi has in mind the roughly 40.3 trillion yen in new bond issuance after the fiscal 2025 budget, her target may be viewed as somewhat expansionary,” said Toru Suehiro, chief economist at Daiwa Securities, in a report on Friday.
Takaichi also said in the interview that the government could tap foreign exchange reserves, a $1.3 trillion war chest for future yen intervention, to fund her plan to slash the consumption tax on food.
The tax cut, a centrepiece of Takaichi’s efforts to ease the impact of rising living costs on households, creates a revenue shortfall of roughly 5 trillion yen annually, intensifying pressure on the government to explain how it plans to fund the shortfall.
The finance ministry said on Friday it would request a record 36.64 trillion yen ($229.78 billion) for debt-servicing costs, including interest payments and debt redemption, in the fiscal 2027 budget, up by 5.36 trillion yen from the current fiscal year.
The increase reflects higher domestic bond yields, which prompted the ministry to raise its assumed interest rate to 3.8%, the highest in 29 years, from 3.0% in the initial fiscal 2026 budget and the 2.6% used when ministries submitted their budget requests a year earlier.
($1 = 159.4600 yen)
(Reporting by Makiko Yamazaki and Takaya Yamaguchi; Editing by Muralikumar Anantharaman, Thomas Derpinghaus and Christian Schmollinger)
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