TOKYO: Japan will borrow 11.7 trillion yen ($74.8 billion) to finance Prime Minister Sanae Takaichi’s extra budget approved by her cabinet on Friday, the finance ministry said, swelling the country’s colossal debts.

Japan already has the biggest ratio of debt to gross domestic product (GDP) among major economies, projected to reach 232.7 percent this year, according to the International Monetary Fund.

Under pressure to address the cost-of-living squeeze, Takaichi is seeking to jumpstart growth, help households and boost defence spending.

The extra budget approved Friday involves 18.3 trillion yen in extra spending as part of a 21.3-trillion-yen stimulus package announced last week.

But resulting worries about Japan’s debt mountain have pushed long-dated bond yields to record highs this month and contributed to a slide in the yen.

Including the 11.7 trillion yen in new bonds, overall issuance will reach 40.3 trillion yen, about 4.3 percent less than last year’s 42.1 trillion yen, Bloomberg reported.

Global credit ratings agency Fitch said Thursday that the stimulus package could increase risks to Japan’s debt rating “if it represents a significant loosening of fiscal policy over the medium term and puts upward pressure on the government debt/GDP trajectory.”

“However, the effect on fiscal metrics remains unclear at this stage, and the announcement follows a relatively strong recent fiscal performance that has given Japan additional headroom at its current rating level,” it added.

Last week, Takaichi pledged to “reduce the government debt-to-GDP ratio, achieve fiscal sustainability and secure trust from the market”.

AFP