Japan’s government increased the amount of debt it plans to issue this fiscal year for the third time in under two months, seeking to fund its unprecedented economic stimulus.
Issuance will surge to 212.3 trillion yen ($2 trillion) in fiscal 2020, according to a plan released by the Ministry of Finance on Wednesday. That’s versus 152.8 trillion yen estimated on April 20.
Higher bond sales are set to put pressure on the Bank of Japan to boost its debt purchases to prevent a steep advance in yields. The central bank has already increased its buying of bonds with maturities of one to 10 years to mitigate the impact of increased government borrowing via these tenors on markets.
Issuance of 6-month bills will rise by more than 35 trillion yen, according to the MOF’s plan. The rest of the increase will be spread over bonds with maturities ranging from one to 30 years, with the bulk of it being in shorter tenors. Japan will not add to its 40-year bond issuance.
“The size of increase is more than what the market had expected and will weigh on short- to medium-term sectors where investor appetite is weak due to their negative yields,” Naomi Muguruma, senior market economist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo.
The yield on Japan’s 2-year notes climbed one basis point to minus 0.155%, its highest close since May 7, while the benchmark 10-year yield was down 0.5 basis point to minus 0.005%. The 5-year yield rose half a basis point to minus 0.13%.
The MOF raised its planned issuance twice in April, with the bulk of the additions being in the shorter maturities back then too.
“The market is expecting the BOJ to buy more as its monetary measures have been less robust compared with measures taken by the Federal Reserve and the European Central Bank,” said Eiichiro Miura, general manager of the fixed-income department at Nissay Asset Management Corp.