Japan to Issue Bridging Bonds to Cover Pension Payment Shortfall

Japan will issue so-called bridging bonds to cover a pension-fund shortfall after opposition parties opposed an initial plan to boost revenue before an increase to the nation’s sales tax takes effect.

The Cabinet approved the planned issuance today, which won’t increase total monthly government bond sales, Finance Minister Jun Azumi told reporters in Tokyo. Bridging bond sales will total about 2.6 trillion yen ($33.3 billion) per year, a finance ministry official said at a separate briefing.

“We will make efforts to get parliament’s consent for the plan as soon as possible,” Azumi said.

Prime Minister Yoshihiko Noda is grappling with the world’s largest public debt as an aging population drives up spending on pensions and social welfare. The national debt is predicted by the Organisation for Economic Co-operation and Development to reach 223 percent of gross domestic product next year.

The government needs to sell bridging bonds this and next fiscal years until the sales tax is raised and revenues increase, according to a government statement released today. The bonds will be paid back from future revenues generated by the higher consumption levy, it said.

Higher Revenue

The Finance Ministry was able to cancel part of its planned bond issuances in fiscal 2011 because of better-than-expected tax revenues. The reduction in sales allowed the ministry to issue some of the fiscal 2012 debt in advance, creating room for these bridging bonds, the official said at a briefing on condition of anonymity because of the ministry’s policy.

In fiscal 2011, the ministry reduced the issuance of deficit-financing bonds by 1.5 trillion yen, reconstruction bonds by 300 billion yen and fiscal and investment loan program bonds by 3.4 trillion yen from the original planned sales amounts, the official said.

The government had initially proposed using pension- financing bonds that wouldn’t be issued until the money was required. The ruling Democratic Party of Japan abandoned that plan after it was criticized by opposition parties who argued it was a way of hiding the size of the government’s total bond sales.

The lower house, the more powerful chamber of the parliament, last month passed legislation to raise the consumption levy to 8 percent in 2014 and then 10 percent in 2015 from the current 5 percent.

To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net