Japan to reduce bond issuance next year for first time in two decades

Japan’s ministry of finance announced that for the very first time since 1998, it would issue a lesser quantity of bonds for the fiscal year 2017 compared to the previous year. It would slash bond issuance by as much as 5 percent to ¥154 trillion. This year, The Japanese government issued bonds worth ¥162.2 trillion. The reason cited was lower demand for bonds amid very low levels of interest rates. The current BoJ interest rate is at -0.1 percent and the Japanese 10-year yield is close to zero.

The government is also trying to reduce its dependence on debt issuance for financing a budget deficit for the third consecutive year. In the fiscal year 2017, it plans to meet rising social security and other costs by using funds set aside for currency market operations as tax revenue growth slows. Below are the key details of the proposed bond issuance,

• ¥27.6 trillion of 10-year bonds, down from ¥28.8 trillion in the current fiscal year;
• ¥26.4 trillion in five-year notes, down from ¥28.8 trillion in the current year;
• ¥26.4 trillion in 2-year notes, down from ¥27.6 trillion;
• ¥23.8 trillion in 1-year bills; down from ¥25.0 trillion.
• The ministry will also sell inflation-indexed 10-year bonds worth ¥1.6 trillion, down from ¥2.0 trillion in this fiscal year.
• Additionally, the government will continue issuing more 40-year debt totaling ¥3.0 trillion on a calendar year basis, up from ¥2.4 trillion in the current year.
• The issuance of 30-year debt will remain unchanged at ¥9.6 trillion.
• The ministry of finance will decrease the sale of 20-year bonds to ¥12.0 trillion in the fiscal year 2017 from ¥13.2 trillion in the fiscal year 2016 in response to declining investor demand.

This move by the Japanese government would help keep a lid on the yield amid bond buying by the Bank of Japan (BoJ), which as of September this year holds about 38 percent of the outstanding JGBs.