Japan’s Record ¥36.6 Trillion Debt Bill Raises Rate and Crypto Liquidity Risks

Japan’s vast public debt has been supported for years by ultra-low borrowing costs, making debt-service expenses highly sensitive to higher yields. A steeper funding bill would narrow the government’s fiscal room as the Bank of Japan moves away from exceptional monetary easing. Further rate increases could also raise the cost of borrowing yen, encouraging investors to unwind yen-funded carry trades and potentially draining liquidity from cryptocurrencies and other risk assets.

Japan’s Ministry of Finance requested a record 36.6 trillion yen for government bond costs in its fiscal 2027 budget request, up 17.1% from the previous year. It also raised the assumed interest rate used in the calculation to 3.8%. The figures reinforced market expectations that the BOJ could tighten policy further, putting the final budget, longer-dated Japanese government bond yields, the yen and the pace of carry-trade unwinds under scrutiny.