Japan’s fiscal alarm bells… national debt hits a record 1,270 quadrillion won

More JGB issuance to plug a funding shortfall

Rising rates flash warning over heavier interest burden

Japan’s national debt—including government bonds and borrowings—hit a record high of 1,342.1720 trillion yen (about 1,270 quadrillion won) at the end of last year. The increase was driven by a rise in new government bond issuance to cover budget shortfalls.

According to the Nikkei and the Ministry of Finance on the 11th, Japan’s national debt at end-2024 rose by 24.5355 trillion yen from the end of 2023. Nikkei pointed out that “as spending pressures build due to aging demographics and responses to rising prices, the structure of relying on massive JGB issuance for funding persists.”

By category, outstanding government bonds increased by 24.0837 trillion yen year on year to 1,197.6396 trillion yen. Treasury bills issued to cover temporary cash shortages stood at 100.3996 trillion yen, while borrowings from financial institutions and others came to 44.1328 trillion yen.

New government bond issuance this year is expected to reach 29.5840 trillion yen, above last year’s 28.6471 trillion yen. Long-term interest rates are trending higher amid market wariness over Prime Minister Sanae Takaichi’s pledge to set the consumption tax rate on food to zero for two years.

Nikkei noted that “with massive amounts of government bonds already outstanding, higher interest rates would further swell the government’s interest payment costs and increase the burden on future generations.” Chief Cabinet Secretary Minoru Kihara said at a press briefing on the 9th, “We will steadily bring down the debt-to-GDP ratio to ensure fiscal sustainability and secure market confidence.”

The yen has been strengthening since the ruling Liberal Democratic Party, led by Takaichi, scored a landslide victory in the general election. On the 11th, the yen–dollar exchange rate fell to the low 153-yen range per dollar. That is roughly a 6-yen appreciation from mid-last month, when it surged to 159 yen per dollar.

After the election victory stabilized the Takaichi administration’s political footing, expectations that it would roll out policies mindful of fiscal concerns have prompted moves to unwind yen short positions—buying back a yen that had been heavily sold. Many are also wary of the Japanese government stepping in to support the yen.

At a press briefing on the 9th, Prime Minister Takaichi said, “We will break completely from excessive austerity and underinvestment,” while adding, “We will work to secure market confidence.” She stressed that the food consumption tax cut would be a temporary measure, helping to somewhat ease fiscal concerns.

Still, some argue that the underlying trend of a weaker yen will persist. Kazumasa Oguro, a professor at Hosei University’s Faculty of Economics, said, “Japan’s real long-term interest rates remain in negative territory, while the U.S. is positive,” adding that “the interest-rate differential is still a factor driving yen selling.”

Tokyo=Correspondent Il-gyu Kim black0419@hankyung.com