Japan set to hike 30, 40-yr bond issuance by 2 trn yen

The Ministry of Finance (MOF) is considering increasing the issuance of 30- and 40-year Japanese government bonds by a total of 2 trillion yen ($17 billion) in the new financial year starting in April, government officials with knowledge of the matter said on Wednesday.

The plan is aimed at taking advantage of current ultra-low yield levels to reduce the need for future debt rollovers as Japan's public debt continues to snowball.

The ministry is also likely to reduce issuing short-term debts instead, such as two- and five-year notes, and to trim the total debt issue from 155.1 trillion yen planned for the current financial year, they added.

STIMULUS FOR GROWTH

• 2 trn yen: The amount of 30- and 40-year govt bonds Japan’s finance ministry likely to issue in the new financial year starting April
• Plan aimed at taking advantage of current ultra-low yield levels to reduce the need for future debt rollovers as Japan's public debt continues to snowball
• Ministry also likely to reduce issuing short-term debts instead and trim the total debt issue from 155.1 trillion yen planned for the current financial year
• In the current financial year to March, the ministry plans to sell 1.6 trillion yen of 40-year bonds and 8.0 trillion yen of 30-year bonds

The MOF is contemplating an increase of around 1 trillion yen each in the issuance of 30- and 40-year bonds and plans to float the idea when ministry officials meet primary dealers on Friday before making a final decision, the sources said.

In the current financial year to March, the ministry plans to sell 1.6 trillion yen of 40-year bonds and 8.0 trillion yen of 30-year bonds, both record amounts.

Yields on 30- and 40-year bonds have fallen sharply since the Bank of Japan stepped up buying in these maturities following its surprise easing on October 31.

"The ministry discussed expanding issuance of 30-year bonds last month, but the amount of the Bank of Japan's buying is exceeding the additional issuance," said Tadashi Matsukawa, head of fixed-income investments in PineBridge Investments in Tokyo.

"The additional issuance won't start until next April, so at this time, the market participants who sold 30-year bonds previously are buying them back, so it's "sell the rumor, buy the news,'" he said

The 30-year bond yield stood at 1.425 per cent on Wednesday, down from 1.445 per cent earlier in the session, and way below Japan's inflation levels.

Japan's core consumer price inflation was 3.0 per cent in September, or an estimated 2.0 percent when the effect of a sales tax increase is excluded.

The MOF's plan came as Prime Minister Shinzo Abe announced on Tuesday he would postpone a planned sales tax hike by 18 months to support the economy.

Additional debt issuance could raise concerns over whether Japan can get its public finances in shape despite Abe's pledge to stick to the government's goal to have a balanced budget excluding debt-related revenues and expenses by 2020.