JGBs inch higher as govt trims next year’s planned issuance

T OK YO: Japanese government bonds (JGB) edged higher, bolstered by news that the Japanese government will pare its debt issuance next year to the smallest total amount in nine years.

The benchmark 10-year cash JGB yield inched down half a basis point to 0.05 per cent, while 10-year JGB futures ended up 0.08 point at 150.78.

In the superlong zone, the 20-year yield was half a basis point lower at 0.570 per cent, while the 30-year yield was flat at 0.815 per cent.

The Ministry of Finance said that it will trim issuance of almost all maturities of JGBs in the next fiscal year beginning April 1.

The announced amount was in line with a Reuters report on Monday, and was slightly bigger than many inve s t o rs had expected.

The ministry will cut the offer amounts of 40-, 30-, 10-, two- year JGBs, and one-year treasury discount bills, by 100 billion yen ( US$ 882.30 mi l l ion) per auction.

It will also cut the fiveyear JGB offer amounts per auction by 200 billion yen.

It kept issuance amounts of popular 20-year JGBs, as well as those of inf lationl inked bonds, int ac t . — Reuters

The general- account budget spending for the next fiscal year starting April will total 97.7 trillion yen ( US$ 860 billion), the biggest amount ever and slightly more than this year’s initial plan to spend 97.5 trillion yen, the Ministry of Finance said.

The budget – a record high for the sixth year – got a boost from snowballing welfare spending to respond to a fast-ageing population and a record military outlay amid regional tensions related to North Korea.

The demands strain the heaviest public debt burden in the industrialised world.

Failure to curb budget spending has cast doubt on Abe’s will to back fiscal reform.

His administration is counting on growth to boost tax revenue and reduce new borrowing, and on the Bank of Japan’s ( BoJ) lowrate policy to curb the high cost of servicing mammoth public debt.

“Abe’s fiscal reform relies heavily on economic recovery and optimistic tax revenue estimates,” said Masaki Kuwahara, senior economist at Nomura Securities.

“I don’t see a strong determination to resolve public debt from this budget.”

Tax revenue for 2018/19 is estimated at 59.1 trillion yen, the highest since fiscal year 1991 during the asset bubble era, assuming the government’s rosy projections for real 1.8 per cent and nominal 2.5 per cent growth next fiscal year.

Hefty tax revenue allows for reductions in new bond issuance to 33.7 trillion yen, bringing the debt dependency ratio to 34.5 per cent - way higher than other advanced peers.

The government will spend 23.3 trillion yen for debt- servicing – roughly a quarter of the overall budget – even as it keeps assumed interest rates at a record low of 1.1 per cent due to the central bank’s negative rate policy. — Reuters