Prime Minister Kishida’s popularity is in freefall, and the measures taken by the ruling coalition to bolster support, may become more desperate. In response to rising prices, Kishida is weighing a ‘bold’ economic package: this could include cash handouts, or even a ‘temporary’ income tax cut.
Kishida claims to want to “give the benefits of tax revenue increases to the people”. But the bond market will balk at tax cuts now when the general government gross debt is holding above 250% of GDP. Politically, there is no desire for fiscal consolidation, and yields are beginning to rise in response to this reality. The BoJ will have to change policy sooner, to avoid the yen from weakening further.
Tax revenues hit a record in FY22. But tax revenues are undershooting in the current fiscal year-to-date. The parliamentary session convening tomorrow, to discuss the stimulus package, comes against the backdrop of rising JGB yields. If Japanese fiscal policy becomes even looser at this juncture, the bond market is not going to react well.
The fiscal trajectory of the US continues to worsen, alongside the rise in Treasury yields. President Biden is considering asking Congress for supplemental funding of $100bn, that includes support for Israel and Ukraine, as well as border security and assistance to countries in the Indo-Pacific region, including Taiwan.
