Japan's government is set to reduce the amount of newly-issued 30-year and 40-year government bonds (JGBs) for the next fiscal year starting in April 2018 from the current fiscal year, government sources told Reuters on Tuesday. The plan comes in response to widening differentials between coupon rates and long-term interest rates under the Bank of Japan's negative interest rate policy, which causes government income to overshoot the face value of these super-long JGBs.
The actual amount of JGBs issued through auction tends to deviate upwards since the central bank's adoption of aggressive monetary stimulus, which keeps long-term interest rates low. This would mark the first time for the government to trim both 30-year and 40-year JGB issuance at the same time.
The Ministry of Finance had planned to sell 147 trillion yen ($1.31 trillion) of JGBs in the last fiscal year ended in March, but the actual amount sold ended up 2.7 trillion yen higher than originally planned. The ministry has reduced the overall JGB sales through auction to 141.2 trillion yen this fiscal year.