Japan raises assumed interest rate for fiscal year 2023/24 debt service

bTOKYO: Japan’s Ministry of Finance (MOF) has raised its assumed interest rate used to calculate debt servicing costs in its budget request for the next fiscal year, a senior ministry official said on Tuesday.

The ministry set the assumed interest rate at 1.3%, down from 1.2% a year earlier, reflecting rising long-term rates, the official told reporters.

This is the first increase in assumed interest rates since the 2007/08 financial year, when assumed rates rose from 2.7% to 2.9%, the official said.

The alleged interest rate hike came as a reminder that the central bank’s ultra-low interest rate policy has kept government borrowing costs low to help fund debt.

The ministry tends to lower assumed interest rates later to reduce borrowing costs when the government draws up a draft annual budget in December, after reviewing all budget requests from ministries.

Budget requests must be submitted by August 31.

The Ministry of Finance will request 26.9 trillion yen ($194.42 billion) for debt service in the fiscal year beginning April 2023, which represents a 10.9% increase over the original budget debt service for this year.

The rising costs of servicing the national debt, or interest payments and debt repayments, highlight the industrial world’s heaviest public debt burden that exceeds more than twice the size of the Japanese economy.

(1 USD = 138.3600 yen)

(Reporting by Tetsushi Kajimoto; Editing by Robert Birsel)

Stephen V. Lee