Borrowing to drive Japan’s debt over 1,100 trillion yen for first time

Japan’s national debt is projected to exceed 1,100 trillion yen ($8.47 trillion) by the end of the fiscal year in March 2027, indicating the country’s heavy reliance on borrowing, according to a draft estimate. This prediction remains true even if Japan, the world’s third-largest economy, experiences an optimistic 3% annual growth in financial terms. By March 2033, the debt is expected to grow close to 1,200 trillion yen.

These predictions underscore Japan’s challenging financial situation, set to worsen due to Prime Minister Fumio Kishida’s plans to significantly increase defense spending. The International Monetary Fund (IMF) has advised Japan to manage its finances better by raising taxes and cutting spending. The IMF insists that any rise in expenses must be matched with a revenue increase, especially considering Japan’s high debt-to-GDP ratio.

According to the draft estimate, the growing debt will cause interest payments to nearly double, increasing from 8.6 trillion yen in fiscal 2023 to 17.1 trillion yen by the end of the forecast period. This estimate will be presented to the Japanese parliament as a reference for discussions on the budget for the next fiscal year.

The Ministry of Finance suggested in earlier projections this month that it could maintain new bond issuance around 32 trillion yen in the next few years. The multiple rounds of COVID-19 stimulus spending have led to a rise in rolling-over bonds to 150 trillion yen. However, this is expected to reduce to 130 trillion yen in fiscal 2024.