Japan’s Finance Ministry projects 16.6 trillion yen in interest payments alone for fiscal year 2027, a record amount bringing total debt-servicing costs above 31.3 trillion yen. This surge stems from an upward revision of the long-term interest rate assumption from 3.0% to 3.8% and the Bank of Japan’s recent policy rate increase to 1.0%, a 31-year high. Total FY2027 budget requests are expected to exceed 130 trillion yen, surpassing the previous record of 122 trillion yen set just one year earlier, with defense allocated 8.9 trillion yen and education slated for 8.7 trillion yen. Japan, which maintains the highest debt-to-GDP ratio among G7 nations, is expected to continue relying heavily on new bond issuances to fund these expenditures.
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