What started as a plan to reduce the national debt is turning into a reason to issue more bonds.

Prime Minister Shinzo Abe’s administration implemented a higher consumption tax in April to boost revenue as government liabilities ballooned to ¥1 quadrillion ($8.5 trillion), more than double the nation’s yearly economic output.

Consumption plunged and the economy fell into a recession, prompting companies including Mirae Asset Global Investments Co. and High Frequency Economics to predict even more sovereign debt sales to revive growth.

“The government’s policies have failed,” Will Tseng, a money manager in Taipei at Mirae Asset, which manages about $62 billion, said in an email Thursday. “They’re still issuing more debt and printing more money to try to help the economy. They’re in a really bad cycle.”

He said he’s staying away from Japanese bonds.

The cost of protecting Japan’s debt from default surged for eight straight days and the yen tumbled to a seven-year low as Abe called a snap election and delayed plans to further increase the consumption tax by 18 months.

Bank of Japan Gov. Haruhiko Kuroda on Oct. 31 boosted the amount of government bonds he plans to buy to as much as ¥12 trillion a month, a record.

Japan will go back to its routine of borrowing more to fund plans to spur growth, said Carl Weinberg, the chief economist at High Frequency Economics in Valhalla, New York.

What it needs to do is allow immigration to keep the population from shrinking, he said Nov. 18 on the “Bloomberg Surveillance” radio program.

“The population and the economy are contracting, and the debt is growing, and that’s an unsustainable trend,” Weinberg said. “Japan remains doomed by its demographics and, of course, by its horrible debt.”

Japan’s borrowings stand at 226 percent of gross domestic product, the largest debt burden in the world. Greece has the second-largest, equal to 175 percent of its economy. The International Monetary Fund projects Japan’s outstanding debt will swell to 245 percent of GDP this year.

The Abe administration plans to sell a record ¥181.5 trillion of securities for fiscal year 2014, which started April 1, according to the Finance Ministry website. The figure is about equal to Australia’s annual economic output.

The amount will probably be about the same in the following 12 months, said Hideo Shimomura, the Tokyo-based chief fund investor at Mitsubishi UFJ Asset Management Co., which oversees the equivalent of $67.5 billion.

Japan may have to postpone its plan to reduce the so-called primary balance deficit in the next fiscal year to half of the level in 2010, Shimomura said. It may still achieve its goal of a surplus in fiscal 2020, he said. The balance is measured as a percentage of GDP and excludes debt payments.

“People will think we should abandon the first target,” Shimomura said. “It might be unachievable. The top priority is getting out of the deflationary situation for Japan.”

Some participants in Japan’s bond market said at a briefing with the Finance Ministry that investors could absorb as much as a combined ¥2 trillion more in 30- and 40-year bonds, a ministry official, who asked not to be named in accordance with government policy, said last Friday

Some dealers also said it would be possible to reduce issuance of two-year and five-year bonds, according to the official.

Finance Minister Taro Aso said earlier this year that achieving the 2020 goal would be “very difficult.” Aso said last week that postponing the consumption tax increase by 18 months had made that goal harder.

Credit-default swaps, used by investors to hedge against bond losses or to speculate on creditworthiness on Japan’s sovereign debt, climbed to 60 basis points last week, the highest level since October 2013. They were 31.5 as recently as September. The move pushed them higher than the average for the past decade of 52.

Investors have sent the yen down more than 8 percent in the past month, the steepest decline of 16 major currencies that Bloomberg tracks against the dollar.

The BOJ’s Kuroda will keep yields from rising because the central bank buys bonds as its method of adding money to the economy, said Yoshiyuki Suzuki, head of fixed income at Fukoku Mutual Life Insurance Co. in Tokyo. With a plan to expand its holdings of government debt by about ¥80 trillion annually, the amount represents about 44 percent of the government’s total issuance for this fiscal year.

“Long-term yields will not change,” Suzuki said Nov. 19. “Government yields should increase, but the BOJ is purchasing a crazy amount, so the yield will not increase a lot.” Fukoku manages $53 billion in assets.

BOJ purchases have helped bring benchmark 10-year yields down to 0.45 percent as of Tuesday. The government one-year bill drew a negative yield at auction for the first time last week, while yields reached zero on two-year notes.

Park Sungjin, who invests $7 billion as head of asset management at Meritz Securities Co. in Seoul, said he’s considering betting against Japanese bonds. Ten-year yields may rise to 0.8 percent in three months, he said.

“From the beginning, I have been very suspicious of Japanese economic policy,” Park said Nov. 19. “They have to increase borrowing. It’s dreadful.”

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