The Ministry of Finance has budgeted ¥36.6 trillion for government debt-servicing costs in its budget request for the next fiscal year. In response to rising long-term interest rates, it raised the assumed interest rate for interest payments from 3.0% to 3.8%, with the total expected to swell significantly.
The Ministry of Finance has finalized plans to include ¥36.6386 trillion for government debt-servicing costs, covering government bond redemptions and interest payments, in its FY2027 budget request. This represents an increase of ¥5.3628 trillion from the FY2026 budget and sets a new record.
With the assumed interest rate for interest payments raised from 3.0% in FY2026 to 3.8%, interest payments are expected to rise 27.2% from FY2026 to ¥16.5888 trillion. The Ministry has requested ¥20.0025 trillion for debt redemption costs, a 9.3% increase, to repay principal.
The final amount of government debt-servicing costs will be determined during the budget compilation process at the end of the year. If market interest rates rise, these costs could swell further and become a source of fiscal pressure.
Outstanding government debt exceeds ¥1 quadrillion. As a shift in the Bank of Japan's monetary policy brings Japan back to a world with interest rates, the increase in interest payments is becoming increasingly pronounced.