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Gov't to curb bond issuance in FY2019 budget amid tax hike, economic stimulus

TOKYO -- The government plans to cut down on the issuance of new bonds from the 33.7 trillion yen in fiscal 2018, according to people familiar with the fiscal 2019 budget draft, marking the ninth consecutive reduction.

The government aims to achieve the reduction by tax revenue increase and by funds not gathered via taxes, including about 800 billion yen of surplus funds managed by the Deposit Insurance Corporation of Japan (DICJ). In fiscal 2017, tax revenue is expected to climb to a record high of around 62.5 trillion yen, and non-tax receipts to top 4.9 trillion yen in fiscal 2018.

Meanwhile, the total amount of the budget is likely to hit a record high of some 101 trillion yen, exceeding the 100 trillion yen mark for the first time at the beginning of the fiscal year. The expected growth in expenditure is due to economic stimulus measures coupled with the October 2019 consumption tax hike and other factors.

The DICJ had accumulated about 1.6 trillion yen in its "Early Strengthening Account" by the end of fiscal 2017, as financial institutions that once received capital injections from the corporation have accelerated their debt repayment.

The surplus funds are being kept in case of the business failure of financial institutions. However, the Board of Audit of Japan pointed out in 2016 that 1.1 trillion yen of the fund actually has no use, and urged the corporation to consider paying the money into state coffers and other measures.

The Ministry of Finance consulted with the Financial Services Agency, which oversees the DICJ, and determined that about 800 billion yen could be transferred to the government without compromising the health of the financial sector. Yet making the transfer is an unusual move requiring legal changes.

Rolling back the issuance of government bonds, on the other hand, has become the major focus of the budget draft for fiscal 2019 with the planned increase in tax revenue and 2-trillion-yen economic stimulus outlays. Cutting down on new bond issues is one of the few policy options the Abe administration can play up to emphasize its eagerness to improve state finances, as the government is calling for hitting a balance between economic recovery and fiscal reconstruction.

Even if the Abe administration is getting a boost from fund infusions from the DICJ, the government will still be paying for a third of state expenditure with borrowed money.

(Japanese original by Wataru Okubo, Business News Department)

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