The Finance Ministry will seek a record ¥36.6 trillion ($230 billion) for debt-servicing costs in its initial budget request for the next fiscal year, according to documents, a sharp increase that highlights the growing burden of higher interest rates. Of the total, about ¥16.6 trillion will be earmarked for interest payments and ¥20 trillion for debt redemptions, according to the documents seen Tuesday. The combined amount would mark a 17% jump from the ¥31.28 trillion allocated to debt servicing in the current fiscal year’s initial budget.
In estimating the cost, the ministry used a provisional interest rate of 3.8%, the highest in nearly three decades, according to a person familiar with the matter. The increase comes as bond yields climb, partly on concerns over Prime Minister Sanae Takaichi’s fiscal agenda, including her growth strategy and a planned sales tax cut. Takaichi has yet to spell out how either of these measures will be funded.
Conflict in the Middle East and mounting fiscal concerns in other major economies have added to upward pressure on borrowing costs globally. Other spending demands are also poised to swell under Takaichi’s overhaul of the budget framework. The overall tally will exceed ¥130 trillion for the first time, according to people familiar with the matter.
Japan’s ministries will submit funding requests for the fiscal year starting in April as the annual budgeting process kicks off in the coming days. The requests are poised to reach an all-time high with Takaichi seeking to bring more expenditure into the initial package rather than rely on later supplementary budgets. The use of extra budgets has been an annual fixture of Japan’s fiscal policy for decades and adds to the impression that Tokyo has a loose policy on spending.
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