Japan’s government is expected to reinforce efforts to encourage greater domestic ownership of Japanese Government Bonds (JGBs) as part of a broader strategy to mitigate long-term interest rate volatility caused by supply-demand imbalances, according to a draft of the nation’s annual economic policy guidelines reviewed by Reuters.
The draft document, which outlines key fiscal and economic targets for the coming years, maintains Japan’s longstanding objective of achieving a primary budget surplus. The government remains committed to realising this goal “as early as possible during fiscal years 2025 to 2026.” However, it also allows for potential reassessment of the timeline in response to evolving global conditions, notably the uncertain impact of United States trade and tariff policies on Japan’s economy and public finances.
The policy draft, scheduled for finalisation later in June following consultations with ruling party lawmakers, signals the government’s intent to uphold fiscal discipline in the aftermath of recent turbulence in the bond market. While shorter-dated JGB yields have remained relatively stable—buoyed by fading expectations of imminent interest rate hikes—super-long bond yields surged to record highs in May, reflecting investor anxiety amid mounting political pressure for increased fiscal expenditure.
In response, the Japanese government is reportedly weighing a reduction in the issuance of super-long JGBs, a move aimed at calming market concerns over the sustainability of public finances. The draft underlines the importance of fostering a stable environment for government bond issuance, recognising the crucial role of market confidence in sustaining fiscal operations.
Japan’s fiscal strategy continues to hinge on achieving a primary budget surplus—defined as balancing spending without new debt issuance or additional borrowing to cover interest payments. This objective, in place since 2018, is viewed as a benchmark for the government’s ability to fund policy initiatives through existing revenue streams rather than accruing further debt.
Nonetheless, a government forecast released earlier this year indicated that the 2025 surplus target might be deferred. Prime Minister Shigeru Ishiba’s administration, currently operating without a parliamentary majority, faces mounting fiscal pressures from opposition-led spending proposals, raising concerns over potential budgetary expansion.
-Reuters
