Japan’s Fiscal Shift: Reducing Debt, Streamlining Spending, and Navigating Rising Interest Rates in 2024/25

Japan is making some big changes to how it manages its money. They plan to borrow less money next year, reducing their debt sales by 10%. Even though they expect to collect around 69.6 trillion yen in taxes, they still plan to borrow 34.9 trillion yen through bonds. This shows they’re trying to be careful with their spending.

The government has also decided to spend less next year. They’ve approved a budget of 112.07 trillion yen, which is less than what they spent this year. This is the first time in 12 years that they’re spending less than before. They’re doing this because they want to manage their money better.

Another change is in the interest rates. Japan thinks the interest rates will go up next year, so they’re planning for it. They expect the rates to be 1.9%, which is higher than the current 1.1%. This is the first time in 17 years that they’re expecting higher rates.

To handle their debt better, Japan will sell fewer government bonds next year. They plan to sell bonds worth 171 trillion yen, focusing more on 20-year bonds. This is a way for them to manage their debts more effectively.

However, because of the higher expected interest rates, Japan will end up paying more to service its debt. They estimate that it will cost them 27.0 trillion yen, which is an increase of 1.76 trillion yen from before.

Japan expects that 31.2% of its budget next year will be used to pay off debt. This means a good portion of their money is going towards managing what they owe. Despite these challenges, the government has also approved a big budget plan of $793 billion for next year, showing they’re still investing in their country’s future.

Lastly, Japan approved a record defense budget of $56 billion for 2024-25, addressing tensions with China and North Korea. The budget includes funds for Aegis missile defense warships, enhancing standoff defense capabilities, and joint development of interceptors for hypersonic missiles. This aligns with Prime Minister Kishida’s commitment to increase defense spending and move towards NATO’s 2% GDP standard by 2027. The overall budget is 112.07 trillion yen, slightly down from the previous year.