Japan to issue 22 trillion yen in new bonds to fund additional budget

Japan has decided to issue new government bonds worth 22.1 trillion yen ($ 192 billion) to fund a supplementary budget for the current fiscal year through next March that will help fund a economic stimulus plan on the COVID-19 pandemic approved last week, according to sources close to the subject.

The planned additional budget of 31.6 trillion yen, which is expected to be approved by Cabinet on Friday, will primarily be used for coronavirus measures and will also ensure a stable supply of semiconductors, the sources said on Wednesday.

The issuance of government bonds means that the bulk of the supplementary budget will be financed by debt, which is a further blow to the country’s fiscal health.

The new bond issue will cover the supplementary budget funding gap, even as fiscal revenue for fiscal 2021 is expected to increase by 6.4 trillion yen from the previous projection and which the government also plans to use 6, 1 trillion yen which was carried over from the fiscal year. Budget 2020.

Some analysts have questioned the need to spend so much now, as the worst of the pandemic appears to be over and the economy is expected to rebound on its own.

“This is important but not entirely unexpected given the size of the economic package,” said Chotaro Morita, chief rate strategist at SMBC Nikko Securities in Tokyo. “The question is how are they going to spend so much money.”

Kishida, who was known for his fiscal prudence, surprised investors last week by unveiling a record tax package of 56 trillion yen, following a report days earlier that the economy had contracted in the last quarter for the fifth time in eight quarters.

Yet with vaccination rates now above 75% and restrictions on economic activity largely lifted, the recovery already seemed poised to gain momentum.

At the same time, the government did not spend more than the 30 trillion yen budgeted for the stimulus last year, suggesting that it might be difficult to quickly pump all the new money into the economy. .

New borrowing will add to the heaviest public debt burden in the developed world. Even without the latest stimulus taken into account, the International Monetary Fund calculates that Japanese public debt will reach 257% of the size of GDP in 2021.

“This is probably the last opportunity for a supplementary budget before next year’s national elections – it’s one of the main reasons for its size,” said Morita of SMBC. “Depending on how the money is used, doubt about Japan’s fiscal management could grow among credit rating agencies.”

Under the planned supplementary budget, around 5,000 billion yen will be allocated in subsidies to restaurants and bars that have complied with authorities’ requests to reduce opening hours or temporarily close under the state of COVID-19 emergency or near emergency.

About 2.8 trillion yen will be used to help small businesses suffering from the pandemic as part of a plan to provide financial assistance of up to 2.5 million yen each for these businesses.

As part of Kishida’s policies to strengthen the country’s economic security, 617 billion yen will be allocated to support computer chip manufacturing companies. Of this amount, 400 billion yen will be used to help Taiwan Semiconductor Manufacturing Co. build a new factory in Kumamoto Prefecture.

Separately, 110 billion euros will be devoted to the promotion of research and development projects for new generation semiconductors.

As for measures to tackle rising crude oil costs, € 80 billion will help oil wholesalers when gasoline prices rise above a certain level.

About 268.5 billion yen will be used to resume the government’s Go To Travel grant program designed to support the tourism sector affected by the pandemic.

Since the program was put on a nationwide halt in December following a spike in new cases of the virus, the unused portion of its fiscal year 2020 budget allocation will also be used.

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