Japan is unlikely to issue ESG sovereign bonds in the near future

Issuing ESG bonds separately from traditional JGBs could make the process of borrowing money less efficient, said Masato Kanda, head of the finance ministry.

Japan’s new Deputy Finance Minister for International Affairs Masato Kanda has indicated that Japan is unlikely to issue ESG sovereign bonds in the near future.

According to Bloomberg, Kanda said that a larger bond market that takes ESG issues into account is good, but he listed a number of hurdles that could make the Japanese government reluctant to issue such bonds.

“There has to be careful consideration so that we don’t rush ESG bonds just for the fun of it,” he said.

Japan has pledged to become net carbon neutral by 2050, but its borrowing practices differ from those of France, Germany, Italy and the UK, where public pressure has helped push governments to issue ESG sovereign bonds. Canada, Denmark and Saudi Arabia are also preparing to launch the first such issues.

Japan has taken steps to make its finances more environmentally friendly, including supporting the financing of moratoria on new coal projects and integrating ESG considerations into its foreign exchange reserves. However, Kanda said the finance ministry would not rush to issue ESG bonds because it fears they will burden future generations with more debt if there is no clear path to paying them back. .

He also noted that Japan’s financing activities may also come under international pressure as a result of decisions made in the EU and elsewhere on what types of projects qualify as ESGs, and that the issuance of ESG bonds separately from JGBs (Japanese government bonds) conventional could make the process of borrowing money less efficient.

A finance ministry report earlier this year pointed out that lower liquidity in ESG bonds could lead to higher funding costs for Japan.

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