How JGBs Are Repaid
Understanding how Japan repays its government bonds through debt rollover and tax revenue
How JGBs Are Repaid: The Role of Government Revenue
Understanding how Japan repays its JGBs is critical to understanding the entire debt management system. Unlike a company that might repay debt from profits, the government repays bonds through government revenue—primarily tax revenue (over 90%), supplemented by other sources like BOJ profit transfers, government property income, and special account surpluses.
The repayment reality:
When JGBs mature, the government must repay the principal. In FY2025, ¥136.2 trillion in bonds are maturing. However, the government's annual non-debt revenue is estimated at ¥87.1 trillion (¥78.4T tax + ¥8.7T other)—a record high, but still far short of what's needed to repay all maturing debt. This creates a fundamental mismatch.
How does Japan bridge this gap?
- Debt Rollover (Refinancing): The government issues new Refunding Bonds to pay back old maturing bonds. This is the ¥136.2 trillion in "Debt Refinancing" shown in the FY2025 issuance plan. Essentially, Japan is "rolling over" its debt rather than paying it down.
- Interest Payments from Government Revenue: While principal is rolled over, the interest (coupon) payments on all outstanding JGBs must be paid annually from government revenue. In FY2025, debt servicing costs are estimated at ¥28.2 trillion (24% of the entire national budget!).
- New Deficit Bonds When Revenue Falls Short: When revenue isn't enough to cover spending (including interest payments), the government issues new Deficit-Financing Bonds. In FY2025, this is ¥28.6 trillion.
Why tax revenue is a critical metric:
- Debt sustainability: If tax revenue grows over time, Japan can eventually stabilize or reduce its debt-to-GDP ratio. If tax revenue stagnates or falls, the debt burden becomes unsustainable.
- Interest coverage: Markets watch whether tax revenue can comfortably cover interest payments. If debt servicing costs exceed 15-20% of tax revenue, it signals fiscal stress.
- Economic indicator: Tax revenue reflects GDP growth, corporate profitability, and consumer spending—making it a lagging but comprehensive economic health indicator.
Historical context:
Japan's tax revenue peaked at ¥60.1 trillion in 1990 (before the "Lost Decades"). It fell to ¥38.7 trillion by 2009 (financial crisis), then gradually recovered to a record ¥78.4 trillion by FY2025 (estimated)—the highest ever and surpassing the 1990 bubble-era peak. This represents the sixth consecutive year of record-high tax revenues, driven by corporate tax recovery and the weak yen. However, this 35-year journey to exceed 1990 levels shows why Japan's debt-to-GDP ratio exploded from 60% (1990) to over 215% (2025)—the government kept borrowing while revenue took decades to recover.