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\nJapan Exchange Group Inc., which has the Tokyo Stock Exchange under its umbrella, is seen in Tokyo’s Chuo Ward. (Mainichi\/Daichi Matsuoka) <\/p>\n
\n TOKYO — Japanese government ministries and agencies submitted their initial budget requests for fiscal 2027 by the Aug. 31 deadline. Requests under the general account are estimated to total around 143 trillion yen (about $894 billion), far exceeding the 122.45 trillion yen for fiscal 2026. That would mark a record high for the fourth consecutive year. The budget requests ballooned as ministries and agencies sought substantial funding under the “strong and prosperous Japan” investment framework created by the administration of Prime Minister Sanae Takaichi.
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\n Markets are taking a wait-and-see approach for now. However, if concerns about deteriorating public finances grow during the upcoming budget-drafting process, they could trigger a sell-off in Japanese government bonds.
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\n Concerns spread through the Tokyo bond market on Aug. 31 as fiscal 2027 budget requests swelled to a record high.
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\n The yield on newly issued 10-year Japanese government bonds, a benchmark for long-term interest rates, briefly rose to 2.950% as bond prices fell. According to Japan Bond Trading Co., it was the highest level since September 1996.
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\n In a speech late last week, U.S. Federal Reserve Chair Kevin Warsh signaled the possibility of an early interest rate hike, pushing up long-term U.S. yields. The rise carried over into the Tokyo market at the start of this week. Concerns about the Takaichi administration’s fiscal policy added to the pressure, prompting further selling of Japanese government bonds. The yield closed at 2.940%, up 1.5 basis points from the previous close.
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\n ‘If spending is allowed to rise without limit …’
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\n Masahiro Ichikawa of Sumitomo Mitsui DS Asset Management Co. attributed the rise in long-term rates mainly to growing fiscal concerns triggered by the record-high budget requests.
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\n Funding for key sectors related to economic security will be handled separately through special accounts, he noted, meaning that “the total could swell considerably when combined with the general account.”
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\n Hideo Kumano of ABC Economic Research Institute Co. said another factor was the Cabinet’s decision to proceed with a consumption tax cut and benefit payments for low- and middle-income households without identifying alternative funding sources. The tax reduction is expected to trim annual revenue by 5 trillion yen (about $31.3 billion).
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\n “If spending is allowed to rise without limit when there is no clear prospect of securing revenue, the resulting shortfall will have to be covered by issuing more deficit-financing bonds,” he said, warning of a further deterioration in the fiscal balance.
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\n The budget requests also include policy items with no specified amount. Tsuyoshi Ueno of the NLI Research Institute expressed concern that decisions on how to fund such requests were being deferred.
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\n “Fiscal discipline is weakening,” Ueno said. “The government needs to engage seriously with market participants.”
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\n (Japanese original by Nami Takata and Naoko Furuyashiki, Business News Department)
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