Nomura Securities analyzes how fiscal policy under the Takaichi administration may be reflected in the bond market, the extent to which an annual deficit expansion of more than ¥10 trillion has been priced in, and interest-rate trends. The analysis focuses on commentary by Shishido Tomoaki (宍戸知暁).
Nomura Securities expects the framework for fiscal policy under the Takaichi Sanae (高市早苗) administration to be decided this summer, identifying the Basic Policy, the interim report and the Bank of Japan's rate-hike decision as key points of focus. Regarding fiscal policy, it believes the bond market may have priced in an annual expansion of the deficit by more than ¥10 trillion.
Here, Senior Rates Strategist Shishido Tomoaki (宍戸知暁) explains trends in the bond market. The analysis presented states that the 10-year real interest rate rose by approximately 45bp after the administration took office, reaching 0.458%. It also refers to the possibility that fiscal expansion under the Takaichi administration could push up inflation expectations.
As for future tax and spending policies, the government is expected to announce its policy on a reduction in the food consumption tax and permanent cash benefits between June and July 2026, making the funding arrangements an important issue. The view presented is that a consumption tax cut would entail a fiscal cost, while the scale of permanent benefits would also affect fiscal stability.
Estimates of the debt increase as a percentage of GDP are viewed as one factor behind the rise in 10-year yields, reflecting the scale of fiscal deficit expansion priced into the market. Specifically, calculations indicate that a debt increase equivalent to 22.5% of GDP has been priced in.
Regarding the funding impact if a zero food consumption tax and income-linked permanent benefits were implemented, the view presented is that the additional upward pressure on interest rates would be limited, based on the expected scale of the decline in tax revenue and increase in spending.