By Takaya Yamaguchi

TOKYO (Reuters] – Japan’s debt servicing cost would rise to 30 trillion yen (261.55 billion dollars) if rates increase by 1%. This is according to a draft of MOF estimates.

In its five-year annual projections, the MOF projected that debt servicing costs would reach 28.8 trillion Japanese yen by fiscal 2025. This assumes interest rates of 1.3%.

If interest rates rise to 2.3%, the estimated amount would be raised to 32.5 trillion Japanese yen by the lower house budget panel to discuss the state budget in fiscal 2025.

If interest rates were 3.3% it would be 36.3 trillion yen. This will put pressure on spending for areas like education and defence.

These latest figures would show the Bank of Japan’s (BOJ), powerful monetary easing as a benefit. This has in effect served to bankroll public and private debts roughly double the amount of Japan’s $5 trillion economy.

Japan’s debt is not a problem, but the BOJ’s extremely low interest policy means that borrowing costs are kept at a rock bottom, which allows the government to spend huge amounts of stimulus money.

Japan has seen years of huge fiscal stimulus that have created infrastructure that is seldom used in rural areas. A debt pile and cost-servicing expenses now account for 25% of the state budget, which amounts to a record 107.6 billion yen.

Fiscal 2025’s budget would reach record levels of 111.6 trillion Japanese yen with an estimated nominal growth rate, at 3%. Fiscal 2025 budget would record 72.1 trillion in tax revenues, non-tax incomes would hit 5.6 trillion yen and new government debt will be at 33.9 trillion.

Given the two-year-old COVID-19 debt issuance, it is possible that debt servicing costs will rise slightly more than government spending.

($1 = 114.7000 yen)