Japan plans to reduce debt sales by about 10 per cent in the fiscal year starting April 1 as the government tries to lower the world’s biggest debt load for a developed nation.

The finance ministry aims to issue 171 trillion yen (S$1.59 trillion) of debt to the market, marking a fourth straight year of planned decreases in sales, with 20-year bonds and shorter notes seeing the big cuts.

Japan has been trying to reduce general government debt that has soared to a size equivalent to 255 per cent of its economy, according to the International Monetary Fund.

Bond issuance jumped in 2020 to finance stimulus measures during the pandemic, and the government has been cutting sales in the following years. But next fiscal year’s planned issuance still remains above pre-2020 levels. 

Expectations that the Bank of Japan will end its negative interest rate policy next year has weighed on demand for bonds as investors anticipate increases in yields.

The ministry aims to lower sales of 20-year securities to 12 trillion yen from its initial plan of 14.4 trillion yen in the current year. It also announced on Friday (Dec 22) that it decreased this year’s planned issuance of this tenor to 13.8 trillion yen. 

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Sales of 10-year notes will be reduced to 31.2 trillion yen from this year’s initial target of 32.4 trillion yen, according to the plan released on Friday. Issuance of two-year and five-year bonds as well as one-year Treasury bills will also be cut, while no sales are planned for six-month bills, versus 8.7 trillion yen this fiscal year. 

The ministry plans to issue 1.4 trillion yen of climate transition bonds in fiscal 2024, compared with planned sales of 1.6 trillion yen of such debt to fund emission-reduction projects next February.

More debt than initially planned may be issued later in the year if the government compiles additional budgets. 

The ministry had indicated likely bond sale reductions in a meeting with primary dealers and investors earlier this month. Some participants said the government should prioritise trimming issuance of 20-year debt, for which demand is declining. Some expressed the view at the meeting that sales of 30-year and 40-year bonds should be maintained due to stable demand. BLOOMBERG