Japan Macro Watch "Supplementary budget looms amid rising yields" Kurihara

Research evidence excerpt

Japan Macro Watch "Supplementary budget looms amid rising yields" Kurihara

Global Research

15 May 2026ab

Japan Macro Watch Economics

JapanSupplementary budget looms amid rising yields

Go Kurihara

Associate Economist

Supplementary budget considered amid elevated long-term yields go.kurihara@ubs.com

+81-3-5293 3000

The Japanese government is rapidly depleting the gasoline subsidy program introduced

in March, which aims to cap retail gasoline prices at around ¥170 per liter amid elevated

energy prices. Monthly expenditures on the subsidy are approaching ¥400 billion,

implying that, under the current funding framework, resources will only last through

June. If the subsidy program were to be terminated, gasoline prices would likely jump by

roughly 20%, pushing up the CPI by approximately 0.5ppt. To avoid such an outcome,

additional fiscal outlays will be unavoidable. Media reports this week finally indicated

that the government has begun considering the compilation of a supplementary

budget. Based on past precedents, we expect the size of the package to be in the range

of ¥3–5 trillion (0.4-0.7% of GDP). However, given the current elevated long-term yields

environment, careful communication will be required.

Shift toward majority support for rate hikes?

The BoJ's April Summary of Opinions showed a more hawkish shift, with the tone

becoming firmer than in March. Many members emphasized that upside inflation risks

now outweigh downside risks to economic activity, strengthening the case for earlier

tightening. Some also noted that if inflation pressures intensify, the pace of rate hikes

may need to accelerate. Policy Board member Masu backed an early rate increase,

arguing action is warranted absent clear signs of economic deterioration. Looking