Japan weighs 3.8% assumed rate for next year's budget request, sources say

TOKYO, Aug 21 : Japan's finance ministry is considering setting the assumed interest rate for calculating debt servicing costs at a 29-year high of 3.8 per cent in its budget request for next fiscal year, two government sources said on Friday.

This would mark an increase from 3.0 per cent in the fiscal 2026 budget, and highlight the strain rising long-term interest rates are inflicting on Japan's stretched finances.

The sources, who declined to be named due to the sensitivity of the matter, confirmed an earlier report by Nikkei newspaper that the assumed rate will likely be set at 3.8 per cent.

Market concern over slow interest rate hikes and Prime Minister Sanae Takaichi's expansionary fiscal policy pushed the yield on the benchmark 10-year Japanese government bond (JGB) to a three-decade high of 2.945 per cent on Tuesday.

The rise in yields has emerged as a critical test for Takaichi's economic strategy by pushing up debt-financing costs and threatening her signature push to pour investment into growth sectors.