Tokyo, Oct. 20 (Jiji Press)–Japanese Prime Minister Sanae Takaichi faces near-term pressure to control debt issuance and secure financial resources to fund key measures after her economic policy has sent the yen weaker and bond yields higher since she took office a year ago. Market players have been concerned about Takaichi’s “responsible and proactive fiscal policy,” believing that it means she favors a reflationary policy of aiming to achieve high economic growth through expanded fiscal spending and monetary easing. The dollar approached 164 yen in late July to hit the highest level in about 39 years, rising sharply from just above 151 yen when Takaichi took office in October last year. The 10-year government bond yield rose to a 30-year high of 3.115 pct in late September, rocketing from just above 1.6 pct. In July, the wording of a draft of the government’s annual economic and fiscal policy guidelines was perceived as a warning against the Bank of Japan’s efforts to raise interest rates, which triggered selling of government bonds. U.S. Treasury Secretary Scott Bessent became increasingly concerned that pressure on Japan’s currency and government bonds might trigger selling of U.S. Treasury securities, leading to the first Japan-U.S. joint market intervention to support the yen in 28 years at the end of July. In exchange for helping to prevent the yen’s further depreciation, Bessent has repeatedly urged the BOJ to raise interest rates. At a press conference on Sept. 1, Bessent said he told Japan that it should end its reflationary policy. U.S. President Donald Trump expressed concerns about a weak yen at a meeting with Takaichi on Sept. 22. To fend off growing U.S. pressure, the Takaichi administration is scrambling to deny that it is pursuing a reflationary policy. Minoru Kiuchi, minister for economic and fiscal policy, has said that Japan is not at a stage of needing to adopt a reflationary policy. Takaichi herself told parliament earlier this month that her administration “will use a straightforward approach to increase market confidence in the government.” Huge financial resources are required in the government’s fiscal 2027 budget to fund a consumption tax cut for food, growth-related investment and an increase in defense spending. The Takaichi administration plans to keep new bond issuance roughly the same as the previous fiscal year at around 40 trillion yen, but this would be a tough task. If the administration is unsuccessful in securing necessary funds and ends up increasing bond issues, financial markets could react harshly again. END [Copyright The Jiji Press, Ltd.]
