Japanese Prime Minister Sanae Takaichi is set to announce plans soon to compile an extra budget in response to rising commodity prices driven by the ongoing Middle East conflict, according to people familiar with the matter.
The planned supplementary budget is expected to fund emergency relief measures rather than provide economic stimulus, according to the people, who asked not to be identified, discussing a private matter. To finance part of its supplementary budget, the government is likely to issue fresh debt, Reuters reported on Monday, citing an unnamed government official.
For weeks, Takaichi and Finance Minister Satsuki Katayama have denied the need for additional funds or fresh bond issuance. But such a development has been seen as almost inevitable given rising oil prices and the depletion of funds to pay for relief measures.
Any extra budget announcement and bond issuance would come amid renewed concerns over the nation’s fiscal sustainability. Yields on longterm Japanese government bonds have climbed to multi-decade highs, with a Kyodo report last week on the possibility of an supplementary budget bumping up yields. The 30-year yield rose to the highest since the tenor’s debut in 1999 last week, while 20- and 40-year yields also touched the highest levels in decades.
The finance ministry wasn’t available for comment. As recently as Friday, Katayama reiterated that the government saw no immediate need for an extra budget, attributing the recent rise in yields partly to global market trends.
The opposition Democratic Party for the People submitted a proposal Friday calling for a ¥3 trillion ($18.9 billion) supplementary budget. Japan typically finances such spending through higher-than-expected tax revenue, unused budget funds or additional bond issuance.
With the current fiscal year having only just started, it remains unclear how much extra tax revenue or unused funds are available, making further debt issuance increasingly likely — especially if the budget exceeds the DPP’s ¥3 trillion proposal.
Takaichi’s government has also yet to finalise plans for temporary food tax cuts, raising further questions about how the measure would be financed. Planned increases in defence spending are also adding to the fiscal strain on her administration.
The government has been subsidising gasoline prices to cap them at ¥170 per liter, using reserve funds to finance the program.
Those funds will likely run out by June 29 under a baseline scenario in which the government continues subsidies of around ¥42.6 per liter, according to a report last week by Takahide Kiuchi, executive economist at Nomura Research Institute.
Separately, the government is reportedly considering reviving subsidies for gas and electricity over the summer months of July to September, which ended at the end of March.
International entities including the Organisation for Economic Cooperation and Development and the Asian Development Bank have recently urged Japan to limit reliance on extra budgets, citing the need to preserve fiscal buffers.
Bloomberg
