Key facts
- Japan's government aims to cap new bond issuance at approximately 40 trillion yen for the fiscal 2027 budget.
- This target is an increase from the 32.7 trillion yen planned for the current fiscal 2026 budget.
- The government intends to include spending in the initial budget that was previously funded by supplementary budgets.
- Prime Minister Sanae Takaichi indicated that foreign exchange reserves could be used to fund a consumption tax cut on food.
- The proposed food consumption tax cut is estimated to create an annual revenue shortfall of about 5 trillion yen.
Japan's government is planning to limit new government bond issuance to around 40 trillion yen for the fiscal 2027 budget, according to Prime Minister Sanae Takaichi. This target represents an increase from the 32.7 trillion yen planned for the current fiscal 2026 budget.
The government intends to incorporate spending into the initial budget that has typically been financed through supplementary budgets in recent years. Takaichi cited the fiscal 2025 budget, where increased tax revenues helped keep new bond issuance below the previous year's level at approximately 40 trillion yen, and stated this approach would continue.
Economists view the 40 trillion yen target, if it refers to the post-FY25 budget issuance level, as potentially expansionary. Takaichi also suggested that the government could utilize its foreign exchange reserves, totaling $1.3 trillion, to fund a proposed consumption tax cut on food. This tax cut is expected to create an annual revenue shortfall of approximately 5 trillion yen, adding pressure on the government to detail its funding plans.