December 16, 2016 7:00 am JST

Japan to trim cap on government bond issues

But the reductions to borrowing are getting smaller

TOKYO -- Japan plans to slightly reduce the cap on new government bond issues to the low 34 trillion yen ($288.18 billion) range for fiscal 2017, but slowing tax revenue could hinder Tokyo's pursuit of economic revitalization and fiscal health.

The reduction will mark the Ministry of Finance's seventh straight year of lowering the cap. Prime Minister Shinzo Abe's government treats the limit as a benchmark of fiscal soundness, touting smaller caps as a win for its signature Abenomics policy package. It was a matter of interest whether the government would take the plunge on a lower JGB cap despite predictions of slowing tax revenue in fiscal 2017.

As it turned out, the finance ministry raised the tax collection estimate -- an important factor in moving the bond cap lower.

At first, the ministry foresaw a 1.9 trillion yen slide in fiscal 2016 tax revenue as corporate tax collections slumped against a strong yen. But the yen has weakened considerably, and the ministry scaled back the drop to only 1.7 trillion yen, for total 2016 tax revenues of 55.9 trillion yen. In its third supplementary budget for this fiscal year, the government plans to issue 1.7 trillion yen of deficit financing bonds.

Now, the estimate for fiscal 2017 tax revenue is tending toward 57.7 trillion yen -- inching above the initial fiscal 2016 estimate.

The fiscal 2017 JGB issue cap is now expected to be in the low 34 trillion yen range, down from fiscal 2016's 34.4 trillion yen. This is a fairly small decrease, however, compared to the 2.4 trillion yen drop that was budgeted for fiscal 2016. The government aims to cover a roughly 500 billion yen rise in annual expenditures -- due largely to social welfare spending -- with boosted revenue from sources such as taxes, as well as spending curbs in other categories.

Through tapping large gains in tax revenue to fund supplementary budgets and curbing bond issues, Abenomics has managed to breathe some life back into the economy while restoring sound public finance. However, while Japan managed to achieve a lower JGB cap in its fiscal 2017 budget, its strategy may become tough to follow if tax revenues continue to taper off.

(Nikkei)

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