Japan may sell as much as 17 trillion yen ($171 billion) of additional bonds this fiscal year to help pay for Prime Minister Taro Aso’s third stimulus package and other projects, Finance Ministry officials said. The government may issue between 16 trillion yen and 17 trillion yen of bonds on top of the planned 113.3 trillion yen of debt to be sold to investors in the year that started April 1, according to two officials who declined to be identified. The extra sale will include borrowing for the stimulus package as well as about 6 trillion yen of so-called zaito bonds to fund loans for state-owned financial institutions, they said. Benchmark bond yields held near their highest level since November after Finance Minister Kaoru Yosano said last week that more than 10 trillion yen in debt may be sold to help fund Aso’s record 15.4 trillion yen economic package. Increasing Japan’s public debt, already the world’s largest, may put more pressure on the central bank to step up its purchases of government debt from commercial lenders, analysts say. “It will be tough for investors alone to absorb such a huge amount of additional bonds,” said Susumu Kato, chief economist at Calyon Securities in Tokyo. “The Bank of Japan may face more and more political pressure to increase its bond purchases to provide fiscal support to the government.” The yield on the 10-year bond rose three basis points to 1.46 percent at 1:29 p.m. in Tokyo, approaching the five-month high of 1.49 percent reached April 10. Pressure From Lawmakers Nobutaka Machimura, who heads the ruling Liberal Democratic Party’s economic recovery panel, said yesterday that he plans to meet with Bank of Japan Governor Masaaki Shirakawa and urge him to boost measures to help companies get financing. The central bank expanded its monthly government bond purchases from lenders to 1.8 trillion yen from 1.4 trillion yen in March. Machimura said his panel hadn’t discussed whether it would ask the bank to increase the purchases further. BOJ board members said that the bank would reach its self- imposed limit for the purchases in several years if they continued at the current pace, according to minutes of their March meeting. The central bank has a rule of preventing its sovereign bond holdings from exceeding the amount of bank notes circulating in the economy. Calyon’s Kato said the bank may increase its purchases by 200 billion yen to 2 trillion yen in about six months. Declining Tax Revenue The ministry plans to meet primary dealers, who must bid at government auctions, to discuss bond issuance tomorrow. It also will hold a meeting with investors next week. The government is expected to submit its extra budget proposal to fund the stimulus to parliament around April 27. The government may need to sell more bonds and compile a second supplementary budget later in the year to help pay for a shortfall in tax revenue. Tax receipts may fall about 4 trillion yen short of this fiscal year’s projection of 46.1 trillion yen as the recession saps corporate tax revenue, two ministry officials said. “In the long run, people are surely concerned about loosening fiscal discipline and slumping tax revenue,” said Naomi Hasegawa, a senior bond strategist in Tokyo at Mitsubishi UFJ Securities Co., a unit of Japan’s largest lender by assets. “That may eventually prompt them to demand higher yields.”

Source