Japan faces record 7 trillion baht debt repayment, straining fiscal capacity
Japan is facing mounting fiscal pressure as the government prepares to allocate a record sum of more than 7 trillion baht (US$220 billion) for debt servicing in the next fiscal year, driven by rising interest rates and growing demands for welfare, defence, and public sector spending.
According to Nikkei Asia, the Ministry of Finance submitted the request on Tuesday to the ruling Liberal Democratic Party (LDP) as part of the drafting of the 2026 budget.
The proposed debt repayment outlay would mark a 15% increase from the current year, breaching ¥30 trillion for the first time. Officials warned the surge could constrain fiscal flexibility for other areas of public expenditure.
Overall, preliminary budget requests are expected to top ¥120 trillion for the first time, reflecting the mounting costs of supporting an ageing society.
The Ministry of Health, Labour and Welfare submitted a record request of ¥34.79 trillion, while the Defence Ministry sought ¥8.8 trillion, also an all-time high.
Interest payments alone are projected to rise 24% to ¥13.04 trillion, based on an assumed long-term rate of 2.6%, up from 2% used in the 2025 budget.
Japan’s ballooning debt burden pushed the yield on new 10-year government bonds to 1.62% on Tuesday, the highest in 17 years, as investors bet the Bank of Japan (BOJ) may raise interest rates and voiced concern over worsening public finances.
The LDP, which lacks an outright majority in both houses of parliament, also faces political pressure to cut taxes while increasing spending, adding further strain to fiscal policymaking.
Japan’s outstanding general government bonds now exceed ¥1,000 trillion. Although nominal GDP has risen due to inflation—slightly improving the debt-to-GDP ratio—the debt load remains one of the highest among advanced economies. Even small rate hikes could sharply inflate interest costs.
In essential budget areas such as salaries and basic government operations, ministries were exceptionally allowed to request increases this year to reflect higher living costs. For example, the Ministry of Land, Infrastructure, Transport and Tourism submitted a request 10% higher than last year, breaking from the previous rule requiring ministries to cap requests at the prior year’s level.
