Japan Targets 40 Trillion Yen in New Bond Issuance for FY27

Japan's Prime Minister Sanae Takaichi has set a target of capping new government bond issuance at around 40 trillion yen ($251 billion) for fiscal year 2027. This goal is seen as somewhat expansionary, given the context of previous years' debt issuance.

The budget requests from government ministries and agencies for next fiscal year are expected to exceed 130 trillion yen, setting a record for a fourth consecutive year. The total could reach around 140 trillion yen, according to Kyodo News.

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. She said her government will continue with the same approach going forward.

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. 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.

Takaichi also said that her 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 creates a revenue shortfall of roughly 5 trillion yen annually, intensifying pressure on the government to explain how it plans to fund the shortfall.