30-year Japanese government bond yields hit a record high! Finance Minister Sanae Takaichi reassures the market: Will "control" bond issuance

According to Zhihu Finance APP, with Japan's deteriorating fiscal situation already pushing bond yields higher, Japanese Prime Minister Sanae Takaichi pledged on Monday to “control” bond issuance and take swift action in the event of market turmoil, aiming to reassure investors concerned about Japan’s worsening public finances.

Delivering a policy speech in parliament, Sanae Takaichi stated: “Fiscal sustainability is clearly the premise for implementing our ‘responsible and proactive’ fiscal policy.” She said that while the Japanese government will increase spending to boost economic growth potential, it will continue to pursue fiscal sustainability, including reviewing existing tax incentives and subsidy policies.

Her remarks reflect growing concerns in Tokyo over the continued rise in Japanese government bond yields. Japan’s public debt is roughly twice the size of its economy, the highest among developed countries. As the Bank of Japan raises interest rates and gradually tapers its bond purchases, financing costs are rising.

On Monday, Japan’s 30-year government bond yield hit a record high of 4.235%, driven by concerns over increased debt issuance risks and inflation worries triggered by the Middle East conflict. Rising bond yields will further increase the financing costs of Sanae Takaichi’s spending plans.

Sanae Takaichi said the Japanese government will attract private capital to growth sectors by “implementing large-scale, long-term fiscal expenditures in a carefully planned and predictable manner.” Meanwhile, she stated the government will keep annual bond issuance in check, and adjust borrowing according to revenues, interest rates, debt financing costs, and economic and market developments.

Sanae Takaichi added: “If there are unexpected changes in the economy and markets, we will carefully examine the impact and respond flexibly if necessary.” However, she did not elaborate on specific measures.

As concerns mount globally over the fiscal health of developed economies and drive bond yields higher worldwide, Japan’s parliamentary debate is expected to shift its focus to fiscal policy. The Japanese government is also compiling next year’s budget, with various ministries applying for record-high spending.

The Japanese government’s top priority at present is to promote passage of legislation supporting Sanae Takaichi’s plan, which proposes a two-year reduction in food taxes starting April next year. However, the plan has sparked bond selling because the government has yet to clarify how it will make up for the resulting fiscal revenue shortfall.

In addition, Sanae Takaichi said the Japanese government will set aside multi-year funding for strategically important economic security initiatives. “We will steadily implement each policy, address issues one by one, and communicate fully and carefully with the public and the markets,” she said.