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Japan's $19B Spending Plan Raises Debt Concerns Despite Assurances

Prime Minister Sanae Takaichi unveiled a 3 trillion yen supplementary budget on May 25 to help Japanese households manage elevated energy costs and living expenses. The spending package would be financed through deficit-covering bonds, prompting bond market skepticism despite government pledges that total 2026 bond issuance would remain flat. The 10-year Japanese sovereign yield rose to 2.809% on May 20, marking its highest level since 1996, as investors questioned the government's debt commitments. This followed reports the administration might issue fresh debt to fund the extra budget. The budget reverses Takaichi's earlier position that additional spending was unnecessary amid Japan's ongoing battle with higher energy prices, rising subsidy costs, and currency weakness. Market analysts noted the mathematical impossibility of increasing expenditures without increasing corresponding debt, signaling investor wariness about fiscal commitments.