Japan’s government on Friday is set to unveil its largest-ever annual budget with nearly $943 billion in spending for the fiscal year beginning in next April, further straining the industrial world’s heaviest debt.
The first annual budget to be compiled by Fumio Kishida’s government got a boost from Covid-19 countermeasures, social security spending to support a fast-ageing population and military outlays to deal with threats from China.
The 107.6 trillion yen ($942.95 billion) annual budget underscores the challenge for Kishida to realise “new capitalism” with a virtuous cycle of growth and wealth distribution and restore already tattered public finances.
Japan also plans to issue 4.2 trillion yen of 40-year government bonds in the new fiscal year, two sources with direct knowledge of the matter said, a 17% increase that comes even as the government plans to cut its bond issuance overall.
Third Straight Increase
It marks a third straight year of increases in issuance of the 40-year bonds, which are closely watched by the market, and reflects solid demand from life insurers at the long end of the yield curve, the sources said.
Kishida’s inaugural debt issuance plan will see overall calendar-based sales of Japanese Government Bonds (JGBs) at around 200 trillion yen, or down about 20 trillion yen from this year, the sources said, reflecting the new premier’s push to keep a lid on debt.
The fiscal deficit in the third quarter stood at 4.04% of gross domestic product (GDP), down from 8.51%. in the second quarter.
“The decline came mainly from the central government, which we attribute to increased tax revenues and the delayed implementation of budgetary items,” Kentaro Koyama, a Deutsche Bank economist, said.
Growing Social Security Costs
Japan’s initial budget for fiscal 2022, which started in April, surpassed 107 trillion yen, marking a record high for the 10th straight year, mainly due to growing social security and national defence costs.
As it did when compiling the initial budget for the current fiscal year 2021 that totalled 106.61 trillion yen, the government set aside 5 trillion yen for reserve funds to continue to fight the Covid-19 pandemic, official sources said.
Tom Learmouth, Japan economist at Capital Economics, said he expects Japan will register 1.3% economic growth in the first quarter of 2022, which would take GDP above its pre-pandemic level.
“We are assuming that PM Kishida won’t announce major domestic restrictions in response to any Omicron wave, given early reports suggesting that the variant causes milder symptoms than Delta,” he said.
- Reuters with additional editing by George Russell
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