Japan Will Sell Several Billion in Bonds to Fund the New Stimulus, Sources Say

Japanese Prime Minister Shinzo Abe (C) sits with Finance Minister Taro Aso (R) and Economic Revitalisation Minister Nobuteru Ishihara (L) as they pose for photographers prior to a cabinet meeting at Abe's official residence in Tokyo on August 2, 2016. The Japanese government on August 2 approved a massive stimulus to boost growth in a economy under threat from a soaring yen, with funds earmarked to counter the impact of Brexit and a deadly earthquake disaster. / AFP / JIJI PRESS / JIJI PRESS / Japan OUT (Photo credit should read JIJI PRESS/AFP/Getty Images)
JIJI PRESS/ AFP/ Getty Images

The Japanese government will issue several hundred billion yen (several billion dollars) of 40-year-bonds as soon as September to fund new economic stimulus measures, two people with direct knowledge of the matter said on Tuesday.

The sources spoke to Reuters on condition of anonymity because the plans are not public, after Finance Minister Taro Aso said his ministry would consult with markets on the possibility of issuing more 40-year government bonds.

He dismissed speculation the government would consider issuing 50-year bonds.

The super-long bond sales, adding to 2.4 trillion yen ($24 billion) worth of those planned for that maturity in the fiscal year to March, will be used to fund projects as accelerating construction of maglev train networks, the sources told Reuters.

See also: Bank of Japan Expands Stimulus, Disappointing Investors

The rail spending is part of 13.5 trillion yen in fiscal measures approved on Tuesday by Prime Minister Shinzo Abe’s cabinet to revive the flagging economy, with cash payouts to low-income earners and infrastructure spending.

The government intends to make the utmost use of ultra-low interest rates under the BOJ’s aggressive monetary easing for providing super-long funds to finance infrastructure projects, Aso said.

“While keeping the amount of Japanese government bonds (JGBs) sold to the market at 147 trillion yen a year, we’ll carefully exchange views with market participants and decide whether to increase super-long JGBs with maturity of 40 years,” he said.

Asked about media reports that the government was considering 50-year bonds, Aso flatly denied such a move. “Newspapers may be considering it, but we are not,” he said.

See also: Japan Is Set to Miss Its FY2020 GDP Target. What’s Next?

The dollar strengthened to 101.91 yen after Aso’s remarks on considering increasing 40-year JGB issuance, but his later comments ruling out 50-year bonds weighed on the greenback.

Aso’s remarks have further dampened some market players’ hopes for “helicopter money,” in which the government issues perpetual bonds for the BOJ to underwrite debt.

See also: Australia Cuts Interest Rates to Record Low, Asian Shares React

“The government will finance a supplementary budget to fund the stimulus by issuing super-long JGBs. But it fell short of expectations for helicopter money,” said Hidenori Suezawa, fiscal and markets analyst at SMBC Nikko Securities, referring to the notion of printing money for government debt financing.

“An increase in 40-year bonds, which have already been issued, would mean cuts in JGBs with other maturities on the calendar basis,” he said.

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