- To implement support to curb household utility, gas bills from July to September
- Will allocate ¥500 billion from reserves for related subsidies
- Will compile extra budget of more than ¥3 trillion
- To create new budget reserves to address impact of higher energy costs caused by Middle East conflict
- Will issue new deficit financing bonds to finance extra budget
- This will have no impact on the bond market as new debt will be offset by higher tax revenue and other matters
- Will make utmost efforts to avoid market disruptions
This was already widely expected and heavily rumoured last week already here. As mentioned then, it’s not so much about the extra budget itself but the fact that it would require another fresh round of funding. While yes, it will help to alleviate the pain from the economic side of things. The question is, how much more damage will it bring on the fiscal side instead?
As mentioned then:
“Just the fact alone that a fresh round of debt will have to be issued is another blow to the Takaichi administration. Since taking over last year, she already had to do so much work to convince markets that her government is still on a responsible fiscal path. And then now, we’re seeing this.
It certainly does complicate things back home, especially the political ramifications. And this is not yet to address the economic damage done to Japan as the US-Iran war continues to rage on.. this certainly does complicate things for the BOJ as well.
The central bank is under pressure to raise interest rates amid surging price pressures, but don’t want to seem desperate in deciding on that just to defend a falling yen currency. But at the same time, fiscal concerns and worsening economic conditions are two major pain points that the BOJ has to try and help balance out as well. So, they are put in a very tough spot.”
