December 16, 2013 7:00 am JST

Japan to issue record 180 trillion yen in bonds for fiscal 2014

RYO NAKAMURA, Nikkei staff writer

TOKYO -- The government is forming a budget plan that would issue about 180 trillion yen ($1.72 trillion) in bonds for fiscal 2014, setting a record and raising concerns in some quarters that the market will at some point have difficulty in digesting the nation's debt, which already exceeds 1,000 trillion yen.

     The record for bond issuance is now the 174 trillion yen raised in fiscal 2012. The debt issue will be included in the government's fiscal 2014 budget plan, slated for cabinet approval as early as Dec. 24.

     Roughly 10 trillion yen more in bonds would be issued than for fiscal 2013. Around 120 trillion yen will be for rolling over current debt, also about 10 trillion yen more than the current fiscal year. This is largely because five-year bonds issued to cope with the 2008 financial crisis and two-year bonds issued in 2011, the year of the earthquake and tsunami disaster, are maturing.

     The issuance of so-called "zaito bonds," used to finance the fiscal investment and loan program, will increase about 5 trillion yen to roughly 16 trillion yen. No special bridge bonds to fund pension payments will be issued, in contrast to the 2.6 trillion yen in fiscal 2013. The amount of fresh borrowing will be kept under the 42.9 trillion yen for fiscal 2013, but it will not be small enough to offset the increase in refinancing.

     While bond issuance will increase, the amount on the market will more or less remain the same. The plan is to issue as much of the fiscal 2014 bonds in the current fiscal year as possible. With the Bank of Japan now purchasing massive amounts of government bonds, the Ministry of Finance hopes to minimize the impact on the market by issuing most of the increase in the current fiscal year.

     But this reliance on the BOJ can only work for so long.

     "Unless there is some drastic move to cut the issuance of fresh debt through such means as cutting spending, there will be a high risk of interest rates going up," says Hidenori Suezawa of SMBC Nikko Securities.

     The Finance Ministry calculates that if interest rates rise 1 percentage point, the nation's debt-financing expenses will rise 1 trillion yen in fiscal 2014 and 2.4 trillion yen in fiscal 2015. This risks pushing up outstanding debt, which totaled 1,011 trillion yen as of Sept. 30, even further.

     The ministry is thus preparing for higher interest rates and considering issuing more 20- and 30-year bonds in order to reduce the frequency of bond issues for refinancing. The government in fact plans to issue more 30-year bonds in fiscal 2014.