Japan's National Debt Reaches Record ¥1,323 Trillion Due to Rising Defense and Social Security Costs
Japan's national debt reached a record ¥1,323.7155 trillion by March 31, 2025, marking the ninth consecutive year of increase. The debt rose by ¥26.554 trillion from the previous year, driven by increased defense and social security spending, and government stimulus measures. The fiscal 2025 budget exceeded ¥115 trillion, with over ¥28 trillion in new bonds planned. Despite the debt, the government will not reduce the consumption tax, citing fiscal discipline. Japan's debt-to-GDP ratio is among the highest globally, raising concerns about fiscal sustainability amid demographic challenges and rising interest rates.
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Japan's National Debt Reaches Record ¥1,323 Trillion Due to Rising Defense and Social Security Costs
Japan's national debt reached a record ¥1,323.7155 trillion by March 31, 2025, marking the ninth consecutive year of increase. The debt rose by ¥26.554 trillion from the previous year, driven by increased defense and social security spending, and government stimulus measures. The fiscal 2025 budget exceeded ¥115 trillion, with over ¥28 trillion in new bonds planned. Despite the debt, the government will not reduce the consumption tax, citing fiscal discipline. Japan's debt-to-GDP ratio is among the highest globally, raising concerns about fiscal sustainability amid demographic challenges and rising interest rates.
Debt Reaches Historic High
As of March 31, 2025, Japan’s total government debt—including government bonds, borrowings, and financing bills—stood at ¥1,323.7155 trillion, according to the Ministry of Finance. This figure represents an increase of ¥26.554 trillion from the previous year, setting a new all-time high for the ninth year in a row.
The breakdown of the debt is as follows:
- Government bonds: ¥1,182.8849 trillion
- Financing bills (short-term government securities): ¥93.8996 trillion
- Borrowings: ¥46.9310 trillion
This accumulation reflects the government’s continued dependence on debt issuance to finance its budgetary needs, particularly in the face of rising mandatory spending and economic support measures.
Drivers of the Debt Increase
The sharp rise in debt over the past fiscal year is attributed to several key factors. Chief among them is the increase in defense and social security spending. In fiscal 2024, Japan’s initial general account budget exceeded ¥110 trillion for the first time, reflecting a significant expansion in public expenditures.
Defense spending has been a major contributor, as Japan seeks to bolster its military capabilities amid regional security concerns. The government has committed to increasing defense outlays to 2% of GDP by fiscal 2027, a move that has already begun to impact the national budget.
Social security costs, driven by Japan’s aging population, continue to rise steadily. These include pensions, medical care, and long-term care services, which now account for more than one-third of the general account budget.
In addition to these structural expenditures, the government implemented a supplementary budget exceeding ¥13 trillion in fiscal 2024. This included measures such as subsidies for electricity and gas bills and cash handouts to low-income households exempt from resident taxes, aimed at cushioning the impact of inflation and rising living costs.
Fiscal 2025 Budget and Outlook
The fiscal 2025 initial budget, which came into effect in April, has also reached a record high of over ¥115 trillion. To finance this, the government plans to issue more than ¥28 trillion in new government bonds. This continued reliance on debt issuance raises concerns about the sustainability of Japan’s fiscal policy, especially as interest payments on the debt are expected to grow in the coming years.
Despite the mounting debt, the government has ruled out a reduction in the consumption tax, a key revenue source. Chief Cabinet Secretary Yoshimasa Hayashi stated on May 9 that cutting the tax would not be “appropriate,” emphasizing the need to maintain fiscal discipline. The government and the ruling Liberal Democratic Party have instead opted to maintain the current tax structure, even amid calls from opposition parties and some ruling lawmakers for tax relief.
Long-Term Fiscal Challenges
Japan’s debt-to-GDP ratio remains among the highest in the world, estimated at around 260% according to the International Monetary Fund. This level of indebtedness places significant constraints on fiscal flexibility and raises concerns about the long-term sustainability of public finances.
The Bank of Japan’s long-standing policy of ultra-low interest rates has helped keep debt servicing costs manageable. However, with inflationary pressures rising and global interest rates trending upward, there is growing uncertainty about how long this environment can be maintained.
Moreover, Japan’s demographic challenges—characterized by a declining and aging population—are expected to further strain the fiscal system. As the working-age population shrinks, the tax base narrows, while demand for social security services continues to grow.
Government’s Fiscal Stance
In response to the growing debt burden, the government has reiterated its commitment to “disciplined fiscal management.” However, the scale of recent budgets and the continued issuance of new bonds suggest that balancing fiscal consolidation with economic support remains a delicate task.
The Ministry of Finance has emphasized the importance of maintaining market confidence in Japan’s fiscal position. While Japan continues to enjoy low borrowing costs and strong domestic demand for government bonds, any shift in investor sentiment could pose risks to financial stability.
