Japan is preparing for one of its biggest stimulus pushes in recent years. Prime Minister Sanae Takaichi is set to fund her new economic package through more bond issuance than last year. This is according to people familiar with the plan. The move comes amid growing concerns over the country’s long-term finances and rising government bond yields.

Takaichi’s extra budget will rely on at least ¥11.5 trillion ($73.5 billion) in new bonds. Strong tax collections — expected to hit a record ¥80.7 trillion this fiscal year — will provide about ¥3 trillion in surplus revenue to soften the borrowing load, the people said.

Even after accounting for that support, the new borrowing far exceeds the ¥6.7 trillion in bonds issued for former Prime Minister Shigeru Ishiba’s stimulus measures a year ago. The cabinet is expected to approve the extra budget on Friday.

The expanded borrowing highlights Takaichi’s challenge. She is pushing aggressive fiscal support while maintaining discipline. Her economic package, unveiled last week, calls for ¥17.7 trillion in fresh spending. This is the largest amount since Japan lifted its pandemic restrictions.

Investors remain cautious. Long-term government bond yields recently climbed to their highest level in over two decades, and the yen continues to weaken.

In a bid to calm markets, Takaichi signaled that total bond issuance for the full fiscal year will still stay below last year’s ¥42.1 trillion combined issuance for initial and supplementary budgets.

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