Spending $112bn to protect your people from inflation

Spending $112bn to protect your people from inflation


Japanese government to present a supplementary budget for the purpose

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TOKYO (Reuters) – Japan's government is considering spending over 17 trillion yen ($112 billion) in a package of measures to cushion the economic blow from rising inflation, a draft of the package obtained by Reuters showed on Wednesday.

To fund part of the spending, the government will compile a supplementary budget for the current fiscal year sized around 13.1tr yen, according to the draft.

The daily Asahi Shimbun reported earlier on Wednesday the package of measures will likely be sized around 17tr yen.

Prime Minister Fumio Kishida said last week his government hoped to compile the package on Nov 2, with measures including temporary cuts to income and residential taxes as well as subsidies to curb gasoline and utility bills.

Read more: Japan weighs spending $33bn on measures to fight inflation


The Bank of Japan intervened in the government bond market on Wednesday to rein in a jump in yields to fresh decade highs, underlining the challenge for the central bank a day after loosening its grip on long-term interest rates.

The 10-year Japanese government bond yield rose 2 basis points (bps) to 0.970 per cent, a level last seen in May 2013, before retreating to 0.960pc immediately after the BOJ announced an emergency bond-purchase operation.

Japan's central bank on Tuesday took another small step away from its decade-long commitment to ultra-easy stimulus by changing the 1pc ceiling for the 10-year yield to a reference point rather than a hard cap.

The monetary authority also removed a pledge to defend the level with offers to buy unlimited amount of bonds, nodding to market forces that have continued to push yields up in line with global moves and domestic inflationary pressures.

Tuesday's adjustments have made it more likely for there to be "a continued sense of caution in the market that we're moving in the direction of policy normalisation," said Keisuke Tsuruta, fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities.

Tsuruta sees the tweak as a step toward the BOJ eventually exiting from negative interest rates policy, which he expects around the beginning of next year at the earliest.

The two-year JGB yield had ticked up to 0.160pc, while the five-year yield reached 0.480pc, levels not seen since 2011.
On the super long end, the 20-year JGB yield rose to its highest since July 2013 at 1.735pc.

The 30-year JGB yield was up 3 bps at 1.905pc.

After Tuesday's changes, yield curve control is "simplified but effectively dead," said James Malcolm, UBS currency strategist based in London.

YCC will stay as a framework until negative interest rate policy ends, when the BOJ could replace it with something like a minimum bond purchase target aimed at managing its balance sheet and countering yield spikes, Malcolm said.

"The positive spin is that less overt control should help market function recover," he added.