Japan’s ruling Liberal Democratic Party has drafted a proposal to issue a novel debt instrument called “bridging bonds,” designed to bankroll Prime Minister Sanae Takaichi’s investment agenda across 17 strategic sectors.
Japanese Government Bond yields ticked higher immediately after the proposal surfaced on May 28, with the 2-year yield climbing 0.5 basis points to 1.385%.
What bridging bonds actually are
The key feature is that these instruments come with explicit guarantees on future redemptions. Those guarantees could include dedicated tax measures down the road, essentially promising investors that specific revenue streams will be earmarked to pay the bonds back.
By segregating this borrowing from conventional JGBs in fiscal accounting, the government can pursue aggressive investment spending without making its already enormous debt pile look even more alarming on paper.
