TOKYO, May 18 (Bernama-Kyodo) -- Prime Minister Sanae Takaichi said her government will consider compiling an extra budget for fiscal 2026 to ease the impact of elevated crude oil prices, fuelling renewed concerns about Japan's deteriorating finances as long-term bond yields move at nearly 30-year highs, Kyodo News reported.
The size of the supplementary budget has come under scrutiny after a record 122.31 trillion yen (US$770 billion) budget was enacted for the year starting April, underscoring Japan's heavy reliance on debt and reflecting Takaichi's stance of pursuing expansionary spending to spur economic growth.
"We will make decisions appropriately and respond timely as needed so that economic activities and people's lives are not disrupted" due to the West Asia situation, Takaichi told a liaison meeting of the government and the ruling parties at her office.
She has instructed Finance Minister Satsuki Katayama to consider crafting a supplementary budget, as gasoline subsidies are set to continue, and financial support to households for gas and utility bills this summer is planned.
Given surging crude oil prices, the government has set aside over 1 trillion yen for the gasoline price subsidies, restarted in mid-March, including reserve funds in the fiscal 2025 budget. But the amount fell to around 980 billion yen by the end of April.
Each month, hundreds of billions of yen are expected to be spent to keep pump prices at around 170 yen per litre. However, some economists estimate that these funds will run out by the end of June.
Takaichi said she told policy chiefs of the ruling Liberal Democratic Party and its coalition partner, the Japan Innovation Party, to craft detailed support measures for electricity and gas bills for households between July and September, when demand for air conditioning increases.
She stressed that the proposed measures should be implemented to keep utility bills at levels below those of last summer.
Usually, the government crafts a supplementary budget in the fall of the fiscal year or later.
Takaichi's call for one also comes as she has repeatedly said she wants to "break away" from the practice of formulating budgets on the assumption that supplementary budgets will be prepared every year. She said necessary expenses should be fully accounted for in the initial budget, without resorting to supplementary budgets.
The advance crafting of the extra budget comes as the yields on the benchmark 10-year Japanese government bond have been trending higher amid persistent concerns over Japan's fiscal sustainability under the Takaichi government.
On Monday, the yield on the benchmark 10-year Japanese government bond briefly rose to 2.800 per cent, its highest level since May 1997, as the debt was sold on worries about public finances.
Higher borrowing costs risk increasing debt-servicing costs for the country, whose debt was estimated at 204.4 per cent of its gross domestic product, the worst ratio among the Group of Seven nations, according to the International Monetary Fund.
Utility bill aid has continued intermittently since Russia's full-scale invasion of Ukraine in 2022, which also resulted in increased crude oil prices.
But the subsidies are costly. From January to March, the government used 529.6 billion yen from the supplemental budget for fiscal year 2025 to reduce household bills by around 7,000 yen.
The government could tap reserve funds totalling 1 trillion yen in the fiscal 2026 budget for economic measures, but the amount could fall short, while critics argue the funds should be reserved for emergencies such as natural disasters.
-- BERNAMA-KYODO
