Higher interest rates could push Japan’s debt service up to 30,000,000,000 yen in fiscal 2025 – draft

A man looks at a mobile phone in front of the Bank of Japan building in Tokyo, Japan, June 16, 2017. REUTERS/Toru Hanai

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TOKYO, Jan 19 (Reuters) – Japan’s debt-servicing costs would top 30 trillion yen ($261.55 billion) for the first time ever in fiscal 2025 if interest rates rise 1% higher than expected, according to a Ministry of Finance (MOF) draft estimates, due later this month, showed.

The MOF, in its annual estimates over a five-year period, projected debt servicing costs, worth 24.3 trillion yen for the next fiscal year, to reach 28.8 trillion yen in the next year. 2025, assuming interest rates of 1.3%.

The estimated amount, which will be presented to the budget committee of the lower house for a debate on the state budget, would reach 32.5 trillion yen in fiscal year 2025 if interest rates rise to 2.3 %.

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It would reach 36.3 trillion yen assuming interest rates at 3.3%, which would weigh on spending needed for policy-related areas such as education, defense and public works.

The latest estimates would benefit from powerful monetary easing by the Bank of Japan (BOJ), which has effectively been used to fund government debt about twice the size of Japan’s $5 trillion economy.

Despite the debt, the Japanese government can spend massive stimulus funds as the BOJ’s ultra-low rate policy keeps borrowing costs down.

In Japan, years of massive fiscal stimulus have left seldom-used infrastructure in rural areas, a pile of debt and debt service charges, which now account for a quarter of this year’s state budget. a record value of 107.6 trillion yen.

With an expected nominal growth rate of 3%, the fiscal year 2025 budget would reach a record 111.6 trillion yen. Tax revenue would reach a record 72.1 trillion yen, non-tax revenue 5.6 trillion yen and new public debt would be less than 33.9 trillion yen.

The increase in debt servicing costs would slightly outpace that of government spending given the rounds of COVID-19-related debt issuances over the past two years.

($1 = 114.7000 yen)

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Writing by Tetsushi Kajimoto Editing by Chizu Nomiyama

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