Japan caps debt costs at four year low for FY2017 budget requests: draft

August 25, 2016 8:43 AM EDT

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By Takaya Yamaguchi

TOKYO (Reuters) - The Japanese Finance Ministry's ceiling for ministries' budget requests for next fiscal year will cap costs on government debt at a four-year-low of 24.62 trillion yen ($245.2 billion), according to a draft seen on Thursday by Reuters.

The government has benefited from the Bank of Japan's radical monetary easing pushing interest rates down near or even below zero, which has helped the finance ministry cap planned costs for the 12 months from next April at 5.5 percent below this fiscal year's initial 26.05 trillion yen limit.

Every year the ministry sets limits on ministry requests, which it trims the requests when they come. For this year, the ministry's final budget cut Japanese government bond (JGB )costs by 9.4 percent from the initial cap it had set. Those costs represented just under a quarter of the total 96.7 trillion yen budget.

The ministry aims to lay out the spending caps for the budget by the end of this month before negotiating with the other ministries to compile a draft budget by around the year end for submission to parliament in early 2017, said an official involved in the process.

The JGB cost cap for the coming year comprises 14.43 trillion yen for debt repayment and 10.15 trillion yen for interest payments, both lower than last year's caps.

Given the extremely low interest rates - the benchmark 10-year bond now yields less than zero - the ministry calculates the government will borrow at a record low 1.6 percent for the coming fiscal year, well below this year's 2.0 percent.

($1 = 100.4000 yen)

(Reporting by Takaya Yamaguchi; Writing by Minami Funakoshi; Editing by William Mallard and Simon Cameron-Moore)

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