The Finance Ministry plans to set the provisional rate for interest payments on government bonds at 2.6% for the next fiscal year, the highest level in 17 years, according to a local media report.
The accumulated interest rate, which serves as the basis for the initial calculation of debt-servicing expenses, will be set at 2.6% in the upcoming budget draft, the Yomiuri Shimbun reported Friday. A year ago, the initially proposed rate for the current fiscal year was 2.1%.
The ministry typically determines the rate by averaging recent market yields and then adding 1.1 percentage points to reflect historical fluctuations.
The 2.6% rate would be the highest since 2009, well above a 2.2% ministry forecast for fiscal 2026 issued back in January. The upward shift comes as Japanese government bond yields climb, partly reflecting investor doubts over the sustainability of large fiscal deficits.
On Friday, the 10-year benchmark briefly touched 1.615%, the most since 2008, while the 20-year yield briefly again reached 2.655%, matching its highest level since 1999.
Expectations of higher interest rates come as the Bank of Japan continues its cautious move away from loose policy. Over the past year, the central bank has raised interest rates from 0.25% to 0.5%, the highest level since 2008.
Rising yields will likely make financing costs more expensive for the world’s most indebted developed nation, even as the government commits to higher defense spending and wrestles with mounting social security costs.
Prime Minister Shigeru Ishiba’s minority government also faces pressure to extend cost-of-living relief, with opposition parties pushing for costly consumption tax cuts.
In its January forecasts, the ministry projected that the debt-servicing costs will likely jump 25% by the fiscal year 2028. The government is expected to compile budget requests from ministries by the end of August.