The Ministry of Finance has requested a record-high debt servicing cost in its budget request for fiscal 2027, and the total budget requests from all ministries are expected to exceed 1,300 trillion yen for the first time. Interest payments are set to reach a record 16.5888 trillion yen, up about 27% from the initial budget for fiscal 2026, while debt redemption costs are 20.0025 trillion yen, bringing total debt servicing costs to 36.6386 trillion yen, a record high. This is driven by rising global interest rates and the Bank of Japan's rate hikes, with long-term interest rates briefly hitting 2.945%, a level not seen in about 30 years. The Ministry of Finance has assumed an interest rate of 3.8% for the budget, and the budget request, which Prime Minister Sanae Takaichi has positioned as the 'first year of responsible and aggressive fiscal policy,' appears to have no upper limit.
Rising global rates and BOJ hikes push long-term yields to near 30-year highs, increasing debt servicing costs and implying higher yields.
