Japan Targets 40 Trillion Yen Bond Issuance for Fiscal Year 2027

Japan's government aims to keep new bond issuance at around 40 trillion yen ($251 billion) for fiscal year 2027, according to Prime Minister Sanae Takaichi. This target is a continuation of the approach taken in fiscal year 2025, where tax revenue partially offset an extraordinary budget and allowed the government to keep new bond issuances below the previous year's level.

Takaichi's government plans to incorporate into the initial budget spending that was often financed through supplementary budgets in recent years. This move could inflate the headline expenditure in the initial budget. The 40 trillion yen issuance is equivalent to the fiscal 2025 budget, but far larger than the 32.7 trillion yen new debt issuance planned for the current fiscal year 2026.

Experts have noted that if Prime Minister Takaichi's target is based on the roughly 40.3 trillion yen in new bond issuance after the fiscal 2025 budget, her target may be viewed as somewhat expansionary. The government also plans to tap foreign exchange reserves, a $1.3 trillion war chest for future yen intervention, to fund plans to slash the consumption tax on food.

The finance ministry has requested a record 36.64 trillion yen ($229.78 billion) for debt-servicing costs in fiscal year 2027, up by 5.36 trillion yen from the current fiscal year. This increase reflects higher domestic bond yields, which prompted the ministry to raise its assumed interest rate to 3.8%, the highest in 29 years.