Japan plans to issue 17 trillion yen of super-long-term government bonds next year, the lowest level in 17 years!

Facing concerns over excessive bond supply in the market and the pressure from ultra-long-term government bond yields hitting historic highs, the Japanese government plans to significantly reduce the issuance of ultra-long-term government bonds to ease market tensions.

On December 24, according to Reuters, two government sources revealed that the issuance of new ultra-long-term government bonds by Japan in the next fiscal year may drop to around 17 trillion yen (US$109 billion), the lowest level in 17 years. Meanwhile, the Ministry of Finance will keep the issuance volume of 10-year government bonds unchanged.

This move highlights the government’s sensitivity to the recent persistent rise in bond yields. The market generally expects that Prime Minister Sanae Takaichi’s large-scale spending plan and expansionary fiscal policy will trigger massive government bond issuance, further pushing up yields.

The reduction plan is expected to directly affect the supply-demand structure of the bond market, providing a buffer for investors. At the same time, this move also reflects the government’s difficult balancing act between stimulating the economy and curbing debt costs.

Comprehensive Reduction in Ultra-Long-Term Government Bond Issuance; Medium and Short-Term Bond Issuance Remains Unchanged

The Ministry of Finance plans a comprehensive cut to ultra-long-term government bond issuance. According to informed sources, the Ministry of Finance is considering cutting the monthly issuance amount of 20-year, 30-year, and 40-year Japanese government bonds by 100 billion yen each in the next fiscal year.

This move would sharply decrease the total issuance of ultra-long-term government bonds. In June this year, the Ministry of Finance was already forced to make a rare revision to its fiscal year issuance plan, reducing issuance from 24.6 trillion yen to 21.4 trillion yen. At that time, a sell-off in the bond market forced the Ministry to take emergency measures. This new reduction plan is a further cut following the mid-year adjustment, reflecting the ongoing structural pressures in the ultra-long-term government bond market.

Compared to the substantial cuts in ultra-long-term government bonds, the Ministry of Finance is keeping medium- and short-term government bond issuance stable. According to sources, the Ministry may issue 31.2 trillion yen in 10-year Japanese government bonds in the next fiscal year, with a monthly issuance amount at 2.6 trillion yen, unchanged from this year’s level.

Sources also said that the Ministry will keep the monthly issuance amount of 2-year Japanese government bonds at 2.8 trillion yen and that of 5-year bonds at 2.5 trillion yen unchanged.

Background to Fiscal Policy Adjustments

Since taking office in October, Sanae Takaichi has continuously emphasized the need to focus on revitalizing the economy and has hinted at downplaying the government's goal of restoring Japan's fiscal position. Her government is expected to finalize a record-size annual budget for the next fiscal year on Friday.

This budget is based on the 21.3 trillion yen stimulus plan prepared in November, which aims to cushion the impact of rising living costs on the economy.

As bond yields climb, the government has downplayed rhetoric about aggressive fiscal spending. In an interview on Tuesday, Sanae Takaichi said the government would not resort to “irresponsible” debt issuance or tax cuts. She noted that although the ratio of Japan’s debt to GDP is showing signs of improvement, the level remains very high.

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