Japanese Prime Minister Naoto Kan refrained from elaborating on how he will raise an extra 10 trillion yen (Dh478 billion) to fund disaster reconstruction, stoking uncertainty over a possible tax increase.
Japan plans to spend 19 trillion yen during the next five years to rebuild from the March earthquake and tsunami, according to a government document released yesterday. Six trillion yen of the total has been secured, and 3 trillion yen is to come from measures including spending cuts and sales of government-owned assets, according to the statement, which didn't say how the remaining 10 trillion yen would be funded.
"It makes sense they are split over a tax increase," said Takeshi Minami, chief economist in Tokyo at Norinchukin Research Institute Co., a unit of Japan's biggest lender for farmers and fishermen. "Proponents are concerned that a Greece-like fiscal crisis will hit Japan eventually, while opponents believe an economic recovery based on a solid reconstruction plan will generate taxes."
Japan's government bond yields remain the lowest among 32 markets tracked by Bloomberg, while its debt burden is twice the size of its economy. Ten-year yields fell 1.5 basis points to 1.08 per cent this week after reaching 1.06 percent on July 19, the lowest level since November 19, according to Bloomberg data.
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"The government is likely to continue to move toward reconstruction without deciding on whether to raise taxes," Minami said. "We are seeing many factors that weigh on yields right now, but yields could move higher if those factors disappear."