The Japanese government on Tuesday sought to reassure financial markets that it remains committed to fiscal discipline, pushing back against concerns that its latest economic policy blueprint signals a softer stance on public finances and increased pressure on the central bank to keep interest rates low, Reuters reported.
The clarification comes after Japanese government bond (JGB) yields climbed sharply, with the benchmark 10-year yield reaching a 30-year high of 2.83% on Monday. Investors grew concerned that the government's emphasis on higher public spending and changes to its fiscal targets could worsen Japan's already heavy debt burden while delaying further interest rate hikes by the Bank of Japan (BOJ).
Economy Minister Minoru Kiuchi said market interpretations that the government's draft economic blueprint was designed to discourage further BOJ rate hikes were misplaced, Reuters reported.
Kiuchi emphasised that the monetary policy decision remains solely within the jurisdiction of the Bank of Japan and that the government has not altered its long-standing position on the central bank's independence.
He also dismissed suggestions that the administration was abandoning fiscal discipline, saying the government had no intention of pursuing reckless spending despite its plans to support economic growth.
No immediate changes to policy blueprint
Reuters reported that Kiuchi said there are currently no plans to revise the language related to fiscal or monetary policy in the draft blueprint. The document is expected to be finalised and approved by the cabinet later this month.
The draft, released last month, called on the Bank of Japan to align monetary policy with the government's economic growth strategy. It also removed earlier language that explicitly pledged to improve Japan's fiscal health, triggering concerns among investors about the country's long-term fiscal direction.
The first economic blueprint under Prime Minister Sanae Takaichi introduces significant changes to Japan's fiscal framework.
Rather than maintaining annual targets for achieving a primary budget surplus, the government plans to treat the surplus as a medium-term indicator assessed over multiple years. The administration also intends to make the debt-to-GDP ratio its primary fiscal benchmark, arguing that the measure better reflects fiscal sustainability as long as economic growth remains strong.
Takaichi pushes pro-growth fiscal strategy
Since taking office in October, Prime Minister Sanae Takaichi has promoted what her administration describes as a responsible but proactive fiscal policy focused on reversing decades of under-investment that weakened Japan's economy and international competitiveness, Reuters reported.
However, investors remain cautious about the government's expansionary spending agenda, particularly given the limited details on how additional expenditures will be financed.
Bond market remains under pressure
The government's renewed emphasis on economic stimulus, combined with uncertainty over funding plans, has fuelled concerns about Japan's already strained public finances.
Those worries have contributed to a sustained rise in government bond yields, as markets weigh the possibility of larger borrowing requirements and a slower pace of monetary tightening by the Bank of Japan.
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