By Tamiyuki Kihara and Leika Kihara
TOKYO, May 28 (Reuters) – Japan’s ruling party will propose issuing “bridging bonds” to fund flagship programmes aimed at boosting growth and economic security, a draft of its proposal showed on Thursday.
The proposal is likely to serve as a basis for the government’s discussions on how to fund its investment plans amid growing market attention to Japan’s worsening finances.
Bridging bonds are used to cover temporary funding needs and are issued with guarantees on specific means to pay for redemption, allowing the government to argue that it is mindful of the need to keep Japan’s fiscal house in order even as it boosts spending.
The idea, first reported by the Nikkei business daily, was included in the LDP proposal on Japan’s growth strategy, according to the draft reviewed by Reuters.
The government should create a new investment framework, some of which can be funded by bridging bonds, the proposal said.
“For investment in areas particularly important from an economic security standpoint, the government should set aside a separate policy scheme with funding spanning several years,” it said, adding that some of the funding could come from bridging bonds.
The Nikkei said the government would consider including the idea of issuing bridging bonds in its medium-term fiscal blueprint, due in July. The prime minister’s office was not immediately available to comment.
Japanese government bonds slid on Thursday, sending yields higher, as the media report rekindled worries about the country’s finances.
Prime Minister Sanae Takaichi has laid out 17 strategic areas, such as semiconductors and shipbuilding, that her administration will target in expanding domestic investment as part of its growth strategy.
The key was how to fund the programmes with Japan’s huge public debt and the premier’s expansionary fiscal policy already putting markets on edge.
Since they are issued for temporary funding, bridging bonds would be excluded from the government’s calculation of Japan’s fiscal measurements such as its debt-to-gross domestic product ratio.
A similar mechanism was used when the government issued climate transition bonds, which were designed to raise money for decarbonisation-related investment with repayment tied to future carbon pricing revenues.
(Reporting by Tamiyuki Kihara and Leika Kihara; additional reporting by Makiko Yamazaki; Editing by Lincoln Feast and Kate Mayberry)
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