Japan's government may need to issue more bonds or drop some spending plans as it faces a shortage of up to 7 trillion yen ($78 billion) in funds in the year to March 2012, the Nikkei newspaper reported. An increase in bond issuance would raise the spectre of a cut in Japan's sovereign ratings as the national debt is nearing 200 percent of its gross domestic product, analysts say.
Fitch, Moody's and Standard and Poor's have all warned Japan it faces a ratings downgrade, which could raise the borrowing costs for the most indebted of the industrialised nations and rattle investors who are already nervous about Greece's debt and the sovereign risk facing other European nations.
"There is also the possibility the government will alter its campaign pledges, because even the general public accepts that some of what the government is promising is unrealistic." The Democratic Party-led government plans to issue a record 44 trillion yen in new bonds in the budget for the business year beginning in April.
It may need to issue even more in the following year from April 2011 as it faces a 6 trillion yen to 7 trillion yen fund shortage if it is to meet the party's election pledges while tax revenues shrink, the Nikkei said without citing sources. The government would have to cut spending, raise taxes or issue more new bonds to cover the shortfall, the paper said.
The Nikkei said tax revenues were likely to fall to 42.6 trillion in 2011/12 from an expected 48 trillion in the year from April 1, a forecast some economists said might be too gloomy and probably reflected a desire by finance ministry mandarins to pressure politicians to do more on fiscal reform.
The bond market didn't react immediately to the Nikkei story. Benchmark 10-year JGB futures rose 0.11 point to 138.74 as investors worried about whether Europe will agree to support Greece sought safety in government debt in other countries. Still, traders and investors said Japan's fiscal woes could push up bond yields in the long term as markets brace for a steadily increasing supply of new debt.
Some analysts are sanguine because Japanese household savings, totalling around $15 trillion, are about the size of the US economy, and this money regularly flows into Japanese government debt. "This is a worry in the long term, but in the short term it's more of the same."
The government will announce a long-term fiscal policy framework and a fiscal discipline target in June. A legally binding framework is one possibility, Finance Minister Naoto Kan told lawmakers in the parliament on Tuesday. Some investors and government officials worry that the fiscal framework could bring Japan closer to a downgrade if it does not include a credible plan to reduce the debt burden.
The government has faced calls from outspoken banking minister Shizuka Kamei, head of a small coalition party, for more spending to stimulate the fragile economy before an upper house election expected in July. Prime Minister Yukio Hatoyama has rejected such calls, helping markets shrug off Kamei's comments. Kamei's push last year for big spending was also unsuccessful.
Comments
Comments are closed.