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Economy February 17, 2026

Japan's Bond Issuance Projected to Jump 28% by Fiscal 2029, Finance Ministry Estimate Shows

Rising debt-servicing costs and ageing-related spending push bond sales and burden on public finances higher under baseline scenarios

By Derek Hwang
Japan's Bond Issuance Projected to Jump 28% by Fiscal 2029, Finance Ministry Estimate Shows

A finance ministry estimate reviewed by Reuters indicates Japan could see annual bond issuance rise to as much as 38 trillion yen in the fiscal year beginning April 2029, a 28% increase from the 29.6 trillion yen projected for fiscal 2026. The projection reflects higher debt-servicing costs driven by rising long-term yields and greater social welfare spending tied to an ageing population, and raises questions about claims that tax cuts can be implemented without increasing debt.

Key Points

  • Annual bond issuance could rise to 38 trillion yen in fiscal 2029 from 29.6 trillion yen in fiscal 2026, a 28% increase.
  • Debt-servicing costs are projected to reach 40.3 trillion yen in fiscal 2029 under a baseline scenario, up from 31.3 trillion yen in fiscal 2026, amounting to roughly 30% of total expenditure.
  • Rising long-term yields and increased social welfare spending tied to an ageing population are the primary drivers, with tax revenues rising but insufficient to close the fiscal gap.

Overview

Japan faces a marked increase in annual bond issuance over the coming three years, according to a finance ministry estimate reviewed by Reuters. The estimate indicates annual issuance could reach up to 38 trillion yen in the fiscal year starting April 2029, up from 29.6 trillion yen in fiscal 2026, as the gap between spending and tax revenues widens.

Drivers of higher issuance

The estimate highlights two main pressures on public finances. First, long-term interest rates are assumed to rise - the baseline scenario uses a 10-year Japanese government bond yield of 3.0% - which increases debt-servicing costs. Second, an ageing population is projected to push up social welfare spending, contributing to a sustained increase in overall expenditure.

Debt-servicing cost projections

Under the scenario assuming nominal economic growth of 1.5% and average inflation of 1%, debt-servicing costs are forecast to reach 40.3 trillion yen in fiscal 2029, compared with 31.3 trillion yen in fiscal 2026. The estimate notes that this level would equal roughly 30% of total expenditure, underscoring the strain rising bond yields would impose on government finances.

Alternate scenario

The finance ministry also considered a scenario with higher nominal growth and inflation - nominal growth of 3% and inflation of 2% - in which debt-servicing costs would be 41.3 trillion yen in fiscal 2029.

Revenue outlook and policy context

While tax revenues are expected to continue rising, the estimate finds they will not be sufficient to cover the steady increase in spending. The projection therefore calls into question assertions by premier Sanae Takaichi that tax cuts can be implemented without increasing debt, because financing needs appear set to grow alongside expenditure.

Implications

The figures underline a fiscal trajectory in which higher borrowing and larger interest outlays accompany an ageing demographic and upward pressure on bond yields. The estimate frames a clear fiscal challenge: balancing revenue and spending amid an environment of rising debt-servicing obligations.

Risks

  • Higher bond yields could substantially increase debt-servicing costs, placing further strain on government finances - impacting the government finance and bond markets sectors.
  • An ageing population is expected to push up social welfare spending, increasing fiscal pressure and influencing budgets and public-sector allocations - affecting social welfare and public finance sectors.
  • Tax revenue growth is projected to be insufficient to offset rising expenditure, creating uncertainty for fiscal policy and potential implications for sovereign borrowing and market confidence - affecting fiscal policy and bond markets.

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