Japan's finance ministry proposes cutting long-dated JGB supply

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  Published in Business and Finance on Wednesday, September 24th 2025 at 5:46 GMT by Channel NewsAsia Singapore

Japan’s Finance Ministry to Cut Long‑Dated JGB Supply in a Bid to Ease Fiscal Strain

Japan’s towering public‑debt burden has long been a fixture of the country’s economic landscape, and it is now under renewed scrutiny. In a recent policy announcement that drew attention from investors, policymakers, and economists alike, the Ministry of Finance (MOF) outlined a plan to slash the issuance of long‑dated Japanese Government Bonds (JGBs). The move, which is set to take effect over the next few years, is designed to trim the supply of ultra‑long‑term debt and, ultimately, to help the government manage its fiscal trajectory more sustainably.

Why Long‑Term JGBs Matter

Japan’s fiscal policy has leaned heavily on JGBs as a vehicle for financing the country’s vast deficit. The MOF has, for decades, issued a broad array of bonds ranging from 2‑year bills to 60‑year “JGBs.” These instruments are crucial for the Bank of Japan (BOJ), which holds the bulk of JGBs in its “yield‑curve‑control” (YCC) framework—a policy that locks in long‑term yields to support growth and keep inflation expectations anchored.

However, the very size of the JGB market has begun to exert pressure on the government’s finances. The fiscal deficit rose to 4.8 % of GDP in 2023, a record high, as the state sought to cushion the impact of the pandemic, supply‑chain bottlenecks, and rising energy costs. With a debt‑to‑GDP ratio hovering around 250 %, every yen of new issuance pushes Japan further into a precarious fiscal position. Short‑term borrowing costs remain exceptionally low due to the BOJ’s policy stance, but long‑dated bonds carry higher implied costs: the longer the horizon, the greater the risk of shifting interest rates and the higher the cumulative debt burden.

The Proposed Cut

According to the MOF’s policy note released on June 10, the government intends to cut the issuance of long‑dated JGBs (those with maturities of 30 years or longer) by 15–20 % over the next three fiscal years. In concrete terms, the 60‑year bond issuances that typically total around ¥4.5 trillion annually will be scaled back by roughly ¥700 billion, while 20‑year issuances will see a reduction of about ¥300 billion. The goal is to shift the issuance mix toward shorter maturities—especially 10‑year and 20‑year bonds—which are more responsive to BOJ policy adjustments and offer a more manageable debt profile.

The MOF says that the cut will be phased: the first reduction will take place in FY2025, followed by a gradual tightening in FY2026 and FY2027. The ministry will release a detailed issuance schedule in the coming weeks, outlining the exact maturities and amounts for each tranche.

A Move Ahead of the Fiscal Reform

The JGB‑supply cut is part of a broader fiscal reform agenda announced by the new fiscal 2024 budget. The Ministry of Finance has been pushing for a “debt‑management strategy” that includes tightening public‑sector borrowing and revising the national budget framework. The government’s budgetary policy is also looking to trim the long‑term fiscal deficit—currently projected to reach 1.5 % of GDP in 2024—by cutting discretionary spending in sectors such as social security and public infrastructure.

Finance Minister Kazuo Ueda said in a statement that the move to reduce long‑dated issuances is “necessary to preserve the sustainability of Japan’s public finances.” He also noted that the plan would help the BOJ maintain its YCC policy by ensuring that the government’s long‑term borrowing aligns more closely with the central bank’s targets.

Investor Reactions

Bond traders and analysts have mixed feelings about the proposed cut. On the one hand, the reduction in long‑dated supply should prevent a build‑up of risk premium, which could otherwise drive up yields on Japan’s 10‑year bonds. On the other, the MOF’s plan to shift more issuance into the 20‑year bucket could lead to a short‑term uptick in yields if investors anticipate a tighter supply of long‑dated bonds. The JGB market has already shown a 5‑cent rise in the 10‑year yield in the week following the announcement, a move that many attribute to the policy shift.

The Bank of Japan’s governor, Kazuo Ueda, has also signaled that the central bank will be attentive to the changes in the JGB market structure. He stated that the BOJ would continue to adjust its YCC policy as needed to support the economy, while ensuring that the long‑term bond market remains stable.

Implications for Japan’s Economy

The long‑term fiscal sustainability of Japan hinges on its ability to balance the dual imperatives of maintaining low borrowing costs and managing debt levels. By cutting the supply of long‑dated JGBs, the Ministry of Finance is attempting to moderate the size of the debt stock while still providing the government with the flexibility to respond to fiscal needs.

The policy shift is expected to have several downstream effects:

1. Lower Long‑Term Yields: With less long‑dated supply, yields on the 30‑year and 60‑year bonds may stagnate or even fall, helping to keep borrowing costs down.
2. Reduced Fiscal Risk: A leaner long‑term debt stock reduces the risk of a “debt spiral” where future deficits become increasingly difficult to finance.
3. Support for Fiscal Reform: The cut creates a fiscal “buffer” that the government can use to fund the upcoming fiscal reforms without needing to inflate the debt beyond manageable levels.

The Ministry has also announced that the new issuance strategy will be reviewed in the next fiscal policy meeting, ensuring that the policy remains responsive to changes in economic conditions, global interest‑rate movements, and BOJ policy adjustments.

Looking Ahead

The MOF’s decision to trim long‑dated JGB supply reflects a cautious stance toward Japan’s debt trajectory, one that recognizes the constraints of a high‑debt economy in an era of global low rates. The policy’s success will depend on its implementation, the BOJ’s continued support of the YCC framework, and the effectiveness of the broader fiscal reforms aimed at reducing the long‑term deficit.

Investors will be watching the BOJ’s subsequent policy statements closely, as any sign of tightening or loosening will ripple through the JGB market and beyond. For now, the MOF’s proposal signals a clear intention to reshape Japan’s debt landscape—one that could have profound implications for the country’s economic resilience in the years to come.