TOKYO (Reuters) -Japan's Ministry of Finance is preparing to ramp up the interest rate it factors in for long-term government bonds to the highest level in 17 years as it gathers in other ministries' budget requests for fiscal 2026/27, the Yomiuri newspaper reported on Friday.
The reported increase in the finance ministry's assumed long-term bond interest rate - to 2.6% from last fiscal year's initial budget-request phase rate of 2.1% and final budget assumed rate of 2.0% - means it would then have
to factor in higher debt-servicing costs.
Saddled with the industrial world's heaviest public debt at more than twice the size of its economy, the government is struggling to reduce spending amid growing calls from opposition parties for tax cuts to help households cope with resurgent inflation after decades of price declines.
The government can also no longer rely on the Bank of Japan to effectively bankroll its debt as the central bank edges away from decades of stimulus and looks to normalise its monetary policy.
Kyodo News reported that rising social welfare and defence costs combined with record debt-servicing are likely to push the combined 2026/27 budget demands of the ministries, due in this month, to a record of around 120 trillion yen.
Kyodo put next fiscal year's assumed debt-servicing costs at a record high of around 30 trillion yen ($202 billion) in the wake of increases in long-term interest rates.
($1 = 148.4900 yen)
(Reporting by Kaori Kaneko, Mariko Katsumura and Makiko Yamazaki; Editing by Jacqueline Wong and Hugh Lawson)
