Japan’s budget will hit a record, but with a reduction in new bond issuance, the draft shows By Reuters

By Takaya Yamaguchi

TOKYO (Reuters) – Japan’s government is set to put together a record $735 billion budget for the fiscal year from April due to greater social security and debt servicing costs, adding to the worst -at the world’s industrial debt, a draft seen by Reuters showed.

The 115.5 trillion yen draft budget was compiled as the Bank of Japan moves away from its decade-long stimulus program, which has put more burden on the government to stimulate the economy.

In an attempt to improve public finances, however, the government plans to cut new bond issuance next fiscal year to 28.6 trillion yen from this fiscal year’s initially projected 35.4 trillion yen, helped by tax revenue growth, the draft showed.

This is the first time in 17 years that new bond issuance has fallen below 30 trillion yen.

Decades of stalling on fiscal spending and reform have left Japan with the heaviest public debt burden in the industrialized world – more than twice the size of its annual economic output.

The BOJ’s withdrawal from a decade of radical stimulus has increased pressure on Japan’s fiscal health, as the government can no longer rely on the central bank to effectively bankroll debt.

The BOJ ended negative interest rates in March and raised its short-term policy target to 0.25% in July. Governor Kazuo Ueda signaled on Wednesday that the next rate hike was imminent, saying that improvements in wages and prices indicated the economy was moving closer to sustainably reaching the 2% target in central bank inflation next year.

The draft budget, from this fiscal year’s 112.6 trillion yen, is expected to be approved by Prime Minister Shigeru Ishiba’s cabinet on Friday for submission to parliament for deliberation early next year.

Tax revenue is expected to rise 8.8 trillion yen from the initial estimate this year to a record 78.4 trillion yen, due in part to the recovery of corporate income, according to the draft.

The primary budget balance, which excludes new bond sales and debt service costs, will be a deficit of less than 1 trillion yen, keeping alive the possibility of meeting the goal of government to deliver a primary budget surplus in the next fiscal year.

The budget draft assumes that the yield on the benchmark 10-year government bond will rise to 2% next fiscal year from 1.9% this year, topping 2% for the first time in 13 years.

That will increase debt service costs for interest payments and debt redemption to 28.2 trillion yen from 27 trillion yen for this fiscal year.

The government on Wednesday revised its economic outlook, estimating the real economic growth rate for the current fiscal year at 0.4%, down from the 0.7% projected in November as China’s economy slows. weighs exports.