Japan's debt-funding costs to hit $257 billion next year -document

Sha Ying | CNBC

Japan expects to spend a record $257 billion to service its debt during the next fiscal year, a document obtained by Reuters showed, underscoring the huge burden created by the government's borrowings.

The amount to be allocated for debt-servicing for the year that will begin on April 1 is nearly as large as the gross domestic product of Singapore, which the World Bank put at $275 billion at the end of 2012.

(Read more: Is Kuroda too 'in love' with his own policies?)

Japan's Ministry of Finance (MOF), charged with drafting the state budget and issuing government bonds, will request 25.3 trillion yen ($257 billion) in debt-servicing costs under the budget, the document showed on Tuesday.

That will be up 13.7 percent from the amount set aside for the current fiscal year, reflecting the ministry's plan to guard against any future rise in long-term interest rates.

The increased debt-servicing cost may heighten pressure on Prime Minister Shinzo Abe to proceed with a scheduled two-stage sales tax hike from next year, which is seen as a necessary first step in fixing Japan's tattered finances.

(Read more: Sales tax hike is vital but till hurt Japan, says IMF)

But with Abe having made ending 15 years of deflation and revitalization of Japan's economy among his top policy priorities, some of his advisers and members of his ruling Liberal Democratic Party want to delay or water down the tax hikes, worried they could hurt a budding economic recovery.

Years of fiscal stimulus to revive a stagnant economy and surging social welfare costs for a rapidly ageing population have led to Japan running a record 1,000 trillion yen ($10 trillion) in public debt, double the size of its economy and the biggest among major industrialized nations.

(Read more: Here's the missing piece in Japan's growth puzzle)

The MOF will compile spending requests for next fiscal year's budget, including its own to fund debt-servicing costs and other expenses, and draft the state budget, which needs government and parliament approval to take effect.