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

TOKYO, Aug 21 - Japan's finance ministry is contemplating a 3.8% assumed interest rate for its budget request next fiscal year, according to two unnamed government sources. This rate would be the highest in 29 years, up from 3.0% in the 2026 budget, indicating the impact of increasing long-term interest rates on Japan's strained finances.

The sources, who requested anonymity due to the matter's sensitivity, confirmed a previous Nikkei report that the assumed rate will likely be 3.8%. Market concerns over slow interest rate hikes and Prime Minister Sanae Takaichi's expansionary fiscal policy have pushed the benchmark 10-year Japanese government bond (JGB) yield to a 30-year high of 2.945% on Tuesday.

This rising yields test Takaichi's economic strategy, as they increase debt-financing costs and threaten her push to invest in growth sectors.