The Bank of Japan's move away from a decade-long stimulus program is pressuring the government to reconsider its approach to funding large spending packages and permanent tax breaks, which could reduce next year's tax revenues by up to 4 trillion yen.
TOKYO -The Bank of Japan 's retreat from a decade-long radical stimulus is pressuring the government to rethink the way it funds its big spending packages with additional debt, a challenge made more daunting by political demands for permanent tax breaks .
Such steps would come in the wake of the BOJ's exit from ultra-low interest rates, which increases the cost of funding Japan's 1,100-trillion-yen debt pile - the biggest among advanced nations and nearly double the size of its economy. Japan is expected to spend 27 trillion yen, or 24% of this year's total budget, on debt-servicing costs. While theyield is well below the 2.1% the ministry used to craft this year's budget, the cost could balloon if bond yields spike.) issuance for the current fiscal year ending in March, estimated at 182 trillion yen, is down 6% from last year but may increase due to Ishiba's spending package.
As the BOJ's heavy buying crushed yields, private banks now hold just 14% of the JGB market, down from 41% before the introduction of Kuroda's stimulus in 2013. Tighter capital regulation has also made banks wary of ramping up bond buying. While the ministry is looking to attract more individual and overseas investors, they are unlikely to become big and stable enough holders to ensure smooth debt issuance, analysts say.
Japan Bank Of Japan Stimulus Program Government Funding Tax Breaks Economic Challenges
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