Event: The Finance Ministry

The Finance Ministry will seek a record ¥36.6 trillion ($230 billion) for debt-servicing costs in its initial budget request for the next fiscal year, according to documents, a sharp increase that highlights the growing burden of higher interest rates.Of the total, about ¥16.6 trillion will be earmarked for interest payments and ¥20 trillion for debt redemptions, according to the documents seen Tuesday. The combined amount would mark a 17% jump from the ¥31.28 trillion allocated to debt servicing in the current fiscal year’s initial budget.In estimating the cost, the ministry used a provisional interest rate of 3.8%, the highest in nearly three decades, according to a person familiar with the matter.The increase comes as bond yields climb, partly on concerns over Prime Minister Sanae Takaichi’s fiscal agenda, including her growth strategy and a planned sales tax cut. Takaichi has yet to spell out how either of these measures will be funded. Conflict in the Middle East and mounting fiscal concerns in other major economies have added to upward pressure on borrowing costs globally.Other spending demands are also poised to swell under Takaichi’s overhaul of the budget framework. The overall tally will exceed ¥130 trillion for the first time, according to people familiar with the matter.Japan’s ministries will submit funding requests for the fiscal year starting in April as the annual budgeting process kicks off in the coming days. The requests are poised to reach an all-time high with Takaichi seeking to bring more expenditure into the initial package rather than rely on later supplementary budgets.The use of extra budgets has been an annual fixture of Japan’s fiscal policy for decades and adds to the impression that Tokyo has a loose policy on spending.

The government will continue measures to keep retail prices of regular gasoline at around ¥170 per liter amid ongoing instability in the Middle East, Prime Minister Sanae Takaichi said Tuesday.Takaichi told reporters that she has instructed industry minister Ryosei Akazawa to consult with Finance Minister Satsuki Katayama to secure necessary funds.“The situation in the Middle East remains uncertain, and it is difficult to predict crude oil prices,” the prime minister said. “We will minimize the impact on people’s lives and economic activities for now.”To secure additional financial resources, the government plans to tap into a ¥2.5 trillion reserve fund for responding to the situation in the Middle East, which was allocated in the fiscal 2026 supplementary budget enacted in June. As of the end of July, the balance of the fund for gasoline subsidies had fallen to about ¥210 billion.The government had previously planned to raise the gasoline price target above around ¥170 as part of a review of the subsidy program, aiming to avoid continuing gasoline subsidies indefinitely amid the prolonged turmoil in the Middle East.“We will flexibly consider how to provide support, including an eventual exit from the (subsidy) program, while closely monitoring the impact of the Middle Eastern situation on future price trends and the economy,” Takaichi said.The government launched gasoline subsidies in January 2022. The subsidy program temporarily ended at the end of December last year with the abolition of the provisional gasoline tax rate but resumed in March this year. The cumulative cost for gasoline subsidies has swelled to about ¥9 trillion.