Japan finalises $117 billion extra budget to fund stimulus, mostly via debt

• Japan cabinet approves 18.3 trillion yen extra budget
• Tax revenue likely to surpass 80 trillion yen for the first time
• Extra budget will be covered by 11.7 trln yen of new debt issuance

By Makiko Yamazaki

TOKYO, Nov 28 (Reuters) - Japanese Prime Minister Sanae Takaichi's government on Friday finalised a $117 billion supplementary budget for this financial year to fund a massive stimulus package, most of which will be financed through new debt issuance.

The 18.3 trillion yen ($117 billion) general account spending under the extra budget exceeds last year's 13.9 trillion yen disbursement, underscoring Takaichi's aggressive fiscal stance that has heightened concerns over Japan's already strained public finances.

The administration last week finalised a stimulus package of 21.3 trillion yen ($137 billion), the largest since the COVID-19 pandemic, aimed at cushioning households from high inflation and spurring economic growth.

Part of the funding will come from stronger-than-expected tax revenue and non-tax income, with tax receipts projected to be 2.88 trillion yen above initial estimates, surpassing 80 trillion yen for the first time.

The remaining shortfall will be covered by 11.7 trillion yen in new government bonds, far larger than last year's additional bond issuance of about 6.7 trillion yen.

In an apparent effort to address concerns over recent rises in super-long yields, Japan plans to increase scheduled sales of short- and medium-term bonds with no increase in issuance of long- and super-long bonds.

The stimulus package includes 2.7 trillion yen in tax cuts and 8.9 trillion yen to ease living costs, such as cash handouts of 20,000 yen per child and subsidies for electricity and gas bills.

Another 6.4 trillion yen will fund strategic investments in sectors like shipbuilding, semiconductors and artificial intelligence.

"For the Takaichi administration, which was forced to set sail as a minority government in both houses of parliament, this extra budget seems to have necessitated all-around concessions to the ruling coalition, opposition parties, local governments, and business groups," Mizuho Securities chief economist Shunsuke Kobayashi said in a report to clients.

The government is aiming for parliamentary passage of the extra budget by the end of next month.

To soothe market concerns about the nation's rising debt burden, Takaichi has stressed the stimulus takes into account fiscal discipline, saying that the government would strive to lower the ratio of debt to gross domestic product - currently the highest in the developed world.

New government bond issuance after the supplementary budget, combined with the initial budget, for this fiscal year is expected to total 40.3 trillion yen, lower than last year's post-supplementary total of 42.1 trillion yen.

($1 = 156.4200 yen)