Japan Faces Fiscal Strain as BOJ Ends Ultra-Low Rate Policy

Rising debt costs and political pressures challenge Japan's economic stability despite record tax revenues.

The Bank of Japan's exit from a decade-long ultra-low interest rate policy is increasing borrowing costs for Japan's massive 1,100-trillion-yen debt, the largest among advanced economies.
Prime Minister Shigeru Ishiba's administration plans a 13.9 trillion yen spending package to address rising living costs, funded partly by new debt and record-high tax revenues.
Japan's tax revenues are projected to reach 73.4 trillion yen in fiscal 2024, driven by corporate profits and inflation, marking a record high for the fifth consecutive year.
The government faces political pressure to implement permanent tax breaks, which could reduce future tax revenues by up to 4 trillion yen, complicating fiscal sustainability efforts.
Analysts warn of long-term risks as Japan increasingly relies on private banks and short-term debt issuance to fund its obligations, raising vulnerability to market fluctuations.