This just means that the fiscal worries will continue to mount, adding to the already damaging reputation for the yen currency amid the Takaichi trade from before.
The report says that the Japanese government is likely to issue fresh debt as part of its funding for a planned extra budget. This budget is largely to help to cushion against the economic blow from the fallout amid the Middle East conflict.
The mounting speculation of this extra budget is already hitting at markets, with 10-year Japanese bond yields hitting 2.80% earlier today with 30-year yields rising to briefly clip a record 4.20% level.
The extra budget is said to focus on subsidies such as gasoline and utility bills, to help with households. That considering Japan has been hit hard by the surge in oil prices, having to be heavily reliant on fuel imports.
For now, there’s no word on what the size of the extra budget will be. However, just the fact alone that a fresh round of debt will have to be issued is another blow to the Takaichi administration. Since taking over last year, she already had to do so much work to convince markets that her government is still on a responsible fiscal path. And then now, we’re seeing this.
It certainly does complicate things back home, especially the political ramifications. And this is not yet to address the economic damage done to Japan as the US-Iran war continues to rage on.
It is expected that the extra budget will be compiled around June or July. And this certainly does complicate things for the BOJ as well.
The central bank is under pressure to raise interest rates amid surging price pressures, but don’t want to seem desperate in deciding on that just to defend a falling yen currency.
But at the same time, fiscal concerns and worsening economic conditions are two major pain points that the BOJ has to try and help balance out as well. So, they are put in a very tough spot.
I don’t see how in any which way that the rout in the Japanese bond market will stop. There is a good chance that 10-year yields will look to 3% and that bodes very ill for the outlook of the yen currency – more so than it already is.
