Foreign Exchange Fund Special Account Surplus to Fund Consumption Tax Cut

The Japanese government is evaluating the use of FEFSA surpluses and FILP bonds to fund consumption tax cuts and defense spending. Analysts remain cautious about the impact of increased bond issuance on JGB yield stability.

Key Takeaways

• 1.Using FEFSA surplus to fund a full consumption tax cut on food is deemed difficult given current fiscal earmarks.
• 2.The government is considering using FILP bonds to fund defense, which may pressure JGB supply/demand dynamics.

Table of Contents

• Using the Foreign Exchange Fund Special Account to fund a consumption tax cut for food
• Using the Fiscal Investment and Loan Program to fund increased defense spending
• Putting everything in initial fiscal year budgets