By Makiko Yamazaki
TOKYO (Reuters) – Japan’s annual interest payments on government debt could surge more than 50% over the next few years, government estimates showed on Thursday, highlighting the country’s struggle to fix its tattered public finances amid rising interest rates.
The latest estimates, prepared by the Ministry of Finance for parliament ahead of a debate on the government’s budget bills, come as the central bank scales back its decade-long, ultra-loose monetary policy that kept borrowing costs near zero.
Last week, the central bank raised interest rates to their highest since the 2008 global financial crisis on the view Japan was on the cusp of sustainably achieving its 2% inflation target.
Interest payments on government debt are expected to increase to 16.1 trillion yen ($104.02 billion) in fiscal 2028, which ends March 30, 2029, versus 10.5 trillion yen for the fiscal year ending March 30, 2026, the estimates showed.
The estimates set the assumed interest rate at 2.5% for fiscal 2028, up from 2% for fiscal 2025. As a result, debt-servicing costs for interest payments and debt redemption are forecast to rise to 35.3 trillion yen from 28.2 trillion in the three years.
Japan’s public debt stands at more than twice the size of its economy, by far the worst in the industrial world.
Earlier this month, the government effectively pushed back its goal of delivering a primary budget surplus as pressures for more spending weigh on the state budget.
It reversed the previous forecast of a primary budget surplus to a 4.5 trillion yen deficit for fiscal 2025, the target year for achieving a surplus for the first time in decades.
The primary budget balance, which excludes new bond sales and debt-servicing costs, is a key gauge of how much policy measures can be financed without issuing debt.
($1 = 154.7800 yen)
(Reporting by Makiko Yamazaki; Editing by Shri Navaratnam)
