Japan's Record Debt Burden Hits New High Amid Rising Interest Rates

Japan's public debt burden continues to deepen as long-term interest rates climb despite already carrying the world's heaviest debt load. The Finance Ministry plans to allocate a record 36.6 trillion yen for principal and interest payments on government bonds in budget requests for fiscal 2027, which marks an increase of 5.3 trillion yen or 17% from the initial debt-servicing budget for fiscal 2026.

The rise in long-term rates is driven by the assumed interest rate used to calculate debt-interest payments, which rose to 3.8% from 3.0% in the fiscal 2026 budget. This has put pressure on government bonds, with the 10-year government bond yield climbing as high as 2.945%, the highest level in about 30 years.

The increasing interest burden could lead to a vicious cycle, where higher yields drive up debt-servicing costs, further eroding fiscal health. The Japanese government may need to secure more than 10 trillion yen in additional funding during the budget process for next year, but tax revenue is expected to rise by only about 680 billion yen from the fiscal 2026 estimate.