Japan's tax revenue for the year through March 2026 forecast at 80.7 trillion yen, a new record for a sixth consecutive year, the sources said.

With higher tax revenue in prospect, Prime Minister Sanae Takaichi, a proponent of expansionary fiscal spending, has said her government will take advantage of it to cover part of an economic package.

The government now plans to issue additional bonds to cover a shortfall in funding the economic measures to address rising living costs and encourage investment in key industry sectors, according to the sources.

The new bond issuance will be higher than an additional 6.7 trillion yen in fresh bonds planned under the government of Shigeru Ishiba, Takaichi's predecessor, for a 13.9 trillion yen supplementary budget last fiscal year.

The Takaichi government is expected to finalize a 17.7 trillion yen supplementary budget for the current fiscal year on Friday to help fund the 21.3 trillion yen economic package.

The tax revenue projection is 2.9 trillion yen higher than the 77.82 trillion yen estimated in the initial budget, as recent wage hikes and inflation will boost revenues from the income and consumption taxes respectively.

The figure also reflects the planned end of the gasoline tax surcharge in December, which is intended to ease financial burdens on households but will cut the government's tax revenue.

The prospect of the massive spending has caused a selloff in the yen and Japanese government bonds. Investors are concerned that Japan's fiscal health, already the worst among advanced economies, may deteriorate, with its debt more than double its gross domestic product.

In an apparent attempt to ease such concerns, Takaichi, who took office last month, has stressed the importance of "wise spending" under her slogan of "responsible and proactive public finances."

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