Japan plans to issue over 11.5 trillion yen in new bonds to finance the fiscal stimulus package.

The Japanese government is planning to fund a new round of economic stimulus through a large-scale issuance of bonds.

On November 26, according to media reports citing informed sources, Prime Minister Sanae Takaichi’s government plans to issue at least 11.5 trillion yen (approximately US$73.5 billion) in new bonds to finance the economic stimulus package announced last week. The supplementary budget is expected to be approved at the Japanese cabinet meeting this Friday.

Although Japan’s Ministry of Finance expects tax revenue this fiscal year to reach a record 80.7 trillion yen, the scale of new debt far exceeds the 6.7 trillion yen of bonds issued a year ago to finance former Prime MinisterShigeru Ishiba’seconomic measures.

Due to concerns about Japan’s long-term fiscal outlook, investors have continued to sell off yen and Japanese government bonds, pushing long-term government bond yields to their highest level in over two decades earlier this month, while the dollar/yen exchange rate remains at elevated levels.

(Dollar/yen exchange rate hovers at yearly highs)

Record Tax Revenue Still Can’t Cover Spending

Thanks to recent wage increases and inflation pushing up personal income and consumption tax revenue, Japan’s tax income has hit a new high.

According to sources cited in reports, for the fiscal year ending March 2026, Japan’s total tax revenue is expected to reach a record 80.7 trillion yen, marking the sixth consecutive year of new highs. This figure is 2.9 trillion yen above initial budget estimates.

The Ministry of Finance believes this surplus of roughly 3 trillion yen can be used to contain borrowing demand. However, even with record tax revenue, the government still needs significant borrowing to cope with soaring stimulus expenditures.

According to reports, Sanae Takaichi’s government is expected to finalize a supplementary budget of 17.7 trillion yen for this fiscal year on Friday, to fund a total economic stimulus package of 21.3 trillion yen.

This is Japan’s largest fiscal stimulus since relaxing pandemic restrictions. The package aims to address rising living costs and encourage investment in key industrial sectors.

Sanae Takaichi’s additional budget will be financed by at least 11.5 trillion yen in new debt issuance. By contrast, former Prime Minister Shigeru Ishiba’s supplementary budget last fiscal year of 13.9 trillion yen only required 6.7 trillion yen in new debt.

This new debt scale marks a difficult balance between Sanae Takaichi’s commitment to stimulus and maintaining fiscal responsibility.

Market Strain and Fiscal Deterioration Risk

Investors are concerned that Japan’s fiscal health may worsen.

As the developed economy with the worst fiscal status, Japan’s debt has already exceeded more than twice its gross domestic product. According to informed sources:

Concerns about Japan’s long-term fiscal outlook under Sanae Takaichi’s leadership have made investors uneasy.

Earlier this month, the yen remained relatively weak and Japanese long-term government bond yields hit their highest levels in over two decades, reflecting the market’s pricing of future supply increases and fiscal risks.

To soothe market sentiment, Sanae Takaichi hinted last week that Japan’s total bond issuance this fiscal year would be lower than last year’s 42.1 trillion yen (including the initial and supplementary budget).

Since taking office last month, Sanae Takaichi has stressed the importance of "wise spending" under her slogan of "responsible and proactive public finances." She is trying to demonstrate fiscal discipline while actively pushing stimulus policies, but the market is still watching to see if this balance can be achieved.

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