FILE PHOTO: Japan's Finance Minister Katsunobu Kato speaks during an interview with Reuters at the Finance Ministry in Tokyo, Japan April 17, 2025. REUTERS/Issei Kato/File Photo

TOKYO (Reuters) -Japan's Ministry of Finance is preparing to raise its assumed interest rate for long-term government bonds at 2.6% for fiscal 2026/27 budget requests, marking the highest level in 17 years, the Yomiuri newspaper reported on Friday.

The assumed bond interest rate was previously set at 2.1% during the fiscal 2025 budget request phase before being lowered to 2.0% in the final budget. The increase for the next budget was expected to result in higher debt servicing costs, the report also said without citing sources.

Separately, the finance ministry plans to allocate around 30 trillion yen ($202 billion) for debt servicing in its fiscal 2026/27 budget request, the Kyodo news agency reported. The figure represents a record high, driven by rising long-term interest rates, the report said.

Annual budget requests for the year starting in April 2026 from Japan's government offices are expected to be submitted to the finance ministry by the end of August.

($1 = 148.4900 yen)

(Reporting by Kaori Kaneko and Mariko Katsumura; Editing by Jacqueline Wong)