Japan Finance Ministry Lifts Bond Assumed Rate to 2.6%, 17-Year High

Japan’s Ministry of Finance plans to raise the provisional interest rate it uses to calculate payments on long-term government bonds to 2.6% for the fiscal-year 2026/27 budget, local media including Yomiuri, NHK and Reuters reported. The move would lift the assumption to its highest level in 17 years, underscoring the government’s expectation that borrowing costs will remain elevated. The planned rate marks a sharp increase from the 2.0% assumption in the current fiscal-year budget and the 2.1% used at the initial request stage last year. Officials expect the higher benchmark to push debt-servicing expenses to roughly ¥30 trillion ($202 billion), a record figure. Overall budget requests from ministries are projected to total about ¥120 trillion before an end-August deadline, potentially setting another all-time high. The adjustment reflects a steady climb in market yields as the Bank of Japan pares back bond purchases and investors demand higher returns. Ten-year Japanese government bond yields have recently topped 1.6%, while some longer-dated issues are trading at levels last seen in 1999. Higher assumed rates give the Finance Ministry a buffer against further increases but also highlight the fiscal strain of servicing the world’s largest public debt load.