Japan Sets 40 Trillion Yen Bond Cap Amid Record Budget Requests

Japan's Prime Minister Sanae Takaichi has announced plans to cap new government bond issuance at around 40 trillion yen ($251 billion) for the fiscal 2027 budget. This target is similar to the one set in 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.

The government plans to incorporate spending that was often financed through supplementary budgets into the initial budget. This could inflate the headline expenditure in the initial budget. The 40 trillion yen issuance is far larger than the 32.7 trillion yen new debt issuance planned for the current fiscal 2026 budget.

Takaichi also mentioned that the government could tap foreign exchange reserves to fund her plan to slash the consumption tax on food, which creates a revenue shortfall of roughly 5 trillion yen annually. The finance ministry has requested a record 36.64 trillion yen ($229.78 billion) for debt-servicing costs in the fiscal 2027 budget, up by 5.36 trillion yen from the current fiscal year.