Japan PM Takaichi: Impact of new debt to be offset by higher tax revenue

Sagar Dua FXStreet

Japan Prime Minister (PM) Sanae Takaichi said during the European trading session on Monday that the potential new debt to compensate for higher household utility and gas bills won’t impact bond markets, as it will be offset higher tax and other revenue sources.

Remarks

To implement support to curb household utility and gas bills from July to September.

Will compile an extra budget of more than 3 trillion Yen.

Will approve electricity and gas subsidy on Tuesday.

Electricity and gas subsidy to cost about 500B yen.

Will issue new deficit financing bonds to finance extra budget. Won't increase bond issuance on a calendar basis.

But will have no impact on the bond market as new debt will be offset by higher tax revenue, others.

It's possible to secure oil supply until next spring.

Will make utmost efforts to avoid market disruptions that were seen in the oil shock era.

To raise the ratio of nuclear and renewable energies to up to 70% from the current 30%.

To call for energy saving that we have done during every summer and winter since the oil shock. Minister Akazawa to announce details of the energy saving measures tomorrow.

Will earn market trust by reducing debt-to-GDP ratio.

Market reaction

No immediate response by the Japanese Yen (JPY) after Japan PM Takaichi's comments. The reasoning behind the JPY remaining unchanged after Takaichi's comments appears to be that government's decision to raise new debt has already been announced last week. As of writing, USD/JPY trades 0.2% higher to near 159.00.

Japanese Yen FAQs

What key factors drive the Japanese Yen?

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

How do the decisions of the Bank of Japan impact the Japanese Yen?

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

How does broader risk sentiment impact the Japanese Yen?

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.

Author

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

GBP/USD clings to gains near 1.3400

GBP/USD retreats after reaching a three-week high above 1.3430, challenging the 1.3400 yardstick on Thursday. Although easing political uncertainty in the UK helps the quid limit its downside, escalating tensions in the Middle East support the Greenback, keeping Cable under scrutiny.

EUR/USD: Daily gains appear capped by 1.1450

EUR/USD keeps the recovery in place and looks to consolidate its gains north of 1.1400 the figure at the end of the NA session on Thursday. The pair’s move higher appears in tandem with a modest pullback in the US Dollar despite geopolitical concerns in the Middle East remain unabated.

Gold flirts with two-day highs, approaches $4,130

Gold stages a modest rebound on Thursday, setting aside a three-day losing streak and managing to surpass the $4,100 mark per troy ounce. However, steady geopolitical tensions have revived concerns over persistently high global inflation, reinforcing expectations of higher rates across the board and somewhat curtailing the yellow metal’s upside potential.

AAVE eyes $100 after Stable Vaults launch

Aave edges higher above $90.00 at the time of writing on Thursday, amid broader price stabilization in the crypto market. The company has announced Stable Vaults, a platform that allows businesses to integrate fixed-rate stablecoin yield, mildly lifting sentiment in the ecosystem.

Japan may be changing its Yen strategy, but markets don’t look scared

Japan may be changing its intervention playbook, but that might not be enough to rescue the battered Yen. With USD/JPY hovering at four-decade highs, the currency’s weakness is being driven less by speculative pressure and more by a powerful structural force: the wide US-Japan rate gap.

Bye, forward guidance: How to trade when central banks choose silence

Central banks have spent years telling markets what might come next. Now, traders face the possibility that they say a lot less. From the Federal Reserve to the European Central Bank and the Bank of England, policymakers are pushing back against forward guidance.