Japan’s ballooning debt burden pushed the yield on new 10-year government bonds to 1.62% on Tuesday, the highest in 17 years, as investors bet the Bank of Japan (BOJ) may raise interest rates and voiced concern over worsening public finances.
The LDP, which lacks an outright majority in both houses of parliament, also faces political pressure to cut taxes while increasing spending, adding further strain to fiscal policymaking.
Japan’s outstanding general government bonds now exceed ¥1,000 trillion. Although nominal GDP has risen due to inflation—slightly improving the debt-to-GDP ratio—the debt load remains one of the highest among advanced economies. Even small rate hikes could sharply inflate interest costs.
In essential budget areas such as salaries and basic government operations, ministries were exceptionally allowed to request increases this year to reflect higher living costs. For example, the Ministry of Land, Infrastructure, Transport and Tourism submitted a request 10% higher than last year, breaking from the previous rule requiring ministries to cap requests at the prior year’s level.