Japan Lifts FY2026 Bond Rate Assumption to 2.6%, Budget Requests ¥120T

Japan’s Ministry of Finance plans to submit fiscal-year 2026/27 budget requests totaling roughly ¥120 trillion ($808 billion), according to reports from Kyodo and other local media. The figure would keep overall spending near record levels as the government faces higher borrowing costs. For the same budget cycle, the ministry intends to raise its assumed interest rate on long-term Japanese government bonds to 2.6%, the Yomiuri and Reuters said. The projection, up from the 2.0% used in the current budget, marks the highest assumption in 17 years and reflects a steady rise in market yields amid expectations the Bank of Japan will tighten policy. The higher rate is expected to push debt-servicing outlays to about ¥30 trillion, also a record, underscoring the pressure that rising interest costs are placing on the world’s most indebted major economy. Government agencies must file detailed funding requests by the end of August, after which the ministry will begin formal budget negotiations.