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Japan is projected to face a sharp increase in government bond issuance over the next three years as rising debt-financing costs strain public finances, according to a finance ministry estimate reviewed by Reuters. The report suggests annual bond issuance could jump 28% by fiscal year 2029, raising fresh concerns about the country’s growing fiscal deficit and long-term debt sustainability.
Under the estimate, Japan may need to issue up to 38 trillion yen ($248 billion) in government bonds in the fiscal year beginning April 2029. This marks a significant increase from 29.6 trillion yen projected for fiscal 2026. The additional borrowing would be required to cover a widening budget gap as government spending continues to outpace tax revenues.
Although tax revenues are expected to rise gradually, they are unlikely to keep pace with mounting expenditures. Japan’s rapidly aging population is driving up social welfare costs, while higher long-term interest rates are increasing debt-servicing expenses. These combined pressures are intensifying the burden on the national budget.
Debt-servicing costs alone are forecast to reach 40.3 trillion yen in fiscal 2029, up from 31.3 trillion yen in fiscal 2026. That would account for roughly 30% of total government expenditure, highlighting the impact of rising Japanese government bond (JGB) yields on public finances. The estimate assumes nominal economic growth of 1.5%, average inflation of 1%, and a 10-year JGB yield of 3%.
Even under a more optimistic scenario of 3% nominal growth and 2% inflation, debt-servicing costs are projected to climb further to 41.3 trillion yen by fiscal 2029. The findings cast doubt on Prime Minister Sanae Takaichi’s position that Japan can implement tax cuts without increasing debt, as fiscal pressures continue to mount amid higher interest rates and structural demographic challenges.
