The pain of interest rate hikes is showing! Japan's Ministry of Finance plans to apply for a record 36.6 trillion yen debt repayment budget, assuming interest rates rise to a 30-year high

The Zhitong Finance App notes that an unpublished official document shows that Japan's Ministry of Finance will claim a record 36.6 trillion yen (about 230 billion US dollars) for debt service costs in the initial budget application for the next fiscal year. This sharp increase highlights the growing burden of rising interest rates.

Of the total, approximately 16.6 trillion yen will be earmarked for interest payments and 20 trillion yen for debt repayment, according to documents seen by the media on Tuesday. This consolidated amount will surge 17% from the 31.28 trillion yen allocated to debt services in the initial budget for the current fiscal year.

According to a source familiar with the matter, the Ministry of Finance used a temporary interest rate of 3.8% when estimating costs, which is the highest level in nearly 30 years.

This increase comes as treasury yields continue to rise, partly due to concerns about Prime Minister Takaichi Sanae's fiscal agenda, including her growth strategy and planned consumption tax cuts. Takaichi Sanae has yet to specify how either of these two measures will raise funds. The conflict in the Middle East and growing fiscal concerns in other major economies have further increased upward pressure on global borrowing costs.

With Takaichi Sanae reforming the budget framework, demand for other expenses will also expand. According to people familiar with the matter, the total will exceed 130 trillion yen for the first time.

As the annual budget preparation process begins in the next few days, Japanese ministries and departments will submit funding applications for the fiscal year beginning in April. As Takaichi Sanae seeks to include more expenses in the initial budget rather than relying on subsequent supplementary budgets, these applications are likely to reach record highs.

The use of additional budgets has been the norm in Japan's fiscal policy for decades, which has deepened the impression that Tokyo has adopted a loose policy in terms of spending.