TOKYO :Japan should promote the domestic ownership of government bonds to avoid further rises in long-term interest rates caused by supply-demand imbalances, according to a draft of the government’s economic policy guidelines reviewed by Reuters.
The draft also said Japan should keep its goal of delivering a primary budget surplus, aiming to achieve the target “as early as possible during fiscal years 2025 to 2026.”
But it also pointed out that the target year “should be reassessed as needed, given that the impact of U.S. tariff policies remains uncertain and their effects on Japan’s economy and finances need to be examined.”
The draft of the annual economic and fiscal policy guidelines, to be finalised later this month after discussions with ruling party lawmakers, reflects the government’s pledge to maintain fiscal discipline after a recent bond market rout.
While yields on shorter-term bonds have remained stable on diminishing prospects of a near-term rate hike, those on super-long Japanese government bonds (JGBs) soared to all-time highs last month amid calls from politicians for big fiscal spending.
Reuters reported that Japan will consider trimming issuance of super-long bonds in the wake of recent sharp rises in yields for the notes, as policymakers seek to soothe market concerns about worsening government finances.
The draft called for efforts to ensure an environment where government bonds are issued in a stable manner.
The government’s long-term policy blueprint sets a goal of fiscal year 2025 to achieve a primary budget surplus, or fund spending without resorting to debt, a pledge it has maintained since 2018.
The primary budget balance, which excludes new bond sales and debt-servicing costs, is a key gauge of the extent to which policy measures can be funded without resorting to debt.
A government estimate earlier this year showed the target could be pushed back again as Prime Minister Shigeru Ishiba’s minority government faces various demands from opposition parties that could potentially inflate the budget.
