Japan's Takaichi pledges fiscal discipline amid rising debt costs

The remarks reflect mounting concern in Tokyo over rising Japanese government bond (JGB) yields, which would boost the cost of funding the premier's ambitious spending plans. The 30-year JGB yield hit a record high of 4.235% on Monday on jitters over the risk of increased debt issuance and inflation worries fuelled by the Middle East war.

Japan's public debt, at roughly twice the size of its economy, is the largest in the developed world. Funding costs are climbing as the Bank of Japan raises interest rates and tapers bond purchases in an effort to wean the economy off decades of massive stimulus.

Takaichi said the government will seek to draw in private investment in growth areas through "massive, long-term fiscal expenditure deployed in a well-planned, predictable manner." At the same time, it would keep a lid on annual bond issuance, calibrating borrowing to tax revenues, interest rates, debt-financing costs and economic and market developments, the premier said in the speech to an extraordinary parliament session that convened on Monday.

"If the economy and markets make unexpected moves, we will scrutinise their impact and respond nimbly as needed," she added without elaborating.

Fiscal policy is set to take centre stage in parliamentary debate in Japan as rising concerns over the fiscal health of advanced economies fuel a broader rise in global bond yields.

The administration's immediate priority is passing legislation backing Takaichi's plan for a two-year tax cut on food items from next April, which sparked a bond selloff due to a lack of detail on how the revenue shortfall will be filled. The government is also preparing next year's budget, with ministries seeking record levels of spending.

Separately, Takaichi said Tokyo will set aside multi-year funds for strategically important economic security initiatives. "We will implement policies steadily, get things done one by one, and communicate them carefully to the public and markets," Takaichi said.