Review of Individual Government Bonds, Inheritance Tax Relief Looms in Year-End Tax Reform

2026-08-02

The Ministry of Finance will compile concrete proposals as early as 2026 to review the features of individual government bonds. Ideas to ease inheritance tax are also emerging among ruling and opposition lawmakers, and the issue could become a point of debate in year-end tax reform. While there is hope that the move could help lift households' financial assets, critics remain firm that it could skew investment choices and create unfair tax breaks.

Moves to Spur Purchases

Finance Minister Satsuki Katayama said at a July 14 news conference, 'Now may be the time to really do it,' signaling that the ministry will consider steps to encourage purchases of individual government bonds. The government plans to unveil specific measures within the year, and calls are growing among lawmakers in both camps for the need to broaden individual ownership.

In July, the Democratic Party for the People submitted a bill to the upper house that would add government bonds to assets eligible for Japan's Nippon Individual Savings Account, or NISA, and exempt interest, capital gains and inheritance tax. Government bonds are currently excluded from NISA. The aim is to review eligible products, which are tilted toward risky assets such as stocks and investment trusts, and encourage investment by older people who hold large amounts of cash and deposits. Liberal Democratic Party lawmaker Kenji Nakanishi also raised the idea of reducing or exempting inheritance tax on individual government bonds at a June 18 meeting of the party's lawmakers group promoting Japan as a nation of asset management, arguing that it would make them easier to hold across generations.

Caution and Fairness

Behind the calls from both ruling and opposition lawmakers for tax breaks is the large room available to channel household funds into government bonds. According to Bank of Japan flow of funds statistics, the share of government bonds held by households in total outstanding issuance stood at just 1.7% as of March 2026. As the BOJ raises its policy rate and continues to cut bond purchases as it moves away from its radical easing policy, creating a new receptacle for funds has become an issue.

Even so, there are still many hurdles to implementation. Takashi Hibino, chairman of the Japan Securities Dealers Association, said at a July 29 news conference, 'Given the purpose of NISA, which is to move savings into investment and channel growth capital to companies, this needs to be considered carefully,' effectively cautioning against including government bonds in the scheme. The current NISA reduces income and residence taxes on capital gains and dividends from stocks and investment trusts, but inheritance tax is not included. There is a view that if only government bonds were given favorable treatment, they would become more likely to be chosen than other products.

There are also many issues from the standpoint of fairness. In a household with a spouse and two children, inheritance tax applies if the inherited estate exceeds 48 million yen, while a spouse is not taxed up to 160 million yen or within the statutory inheritance share. In practice, only about 10% of decedents are subject to inheritance tax. There is a view that if relief measures are introduced, the benefit would skew toward wealthy households, and a banking source said the incentive to hold government bonds would rise substantially.

A senior Finance Ministry official also said, 'I cannot find a reason to give only individual government bonds favorable inheritance tax treatment.' Another official expressed concern about lower tax revenue and pointed to the fact that inheritance tax revenue hit a record 3.8 trillion yen in fiscal 2025, boosted by rising asset prices due to inflation. Katsuhiko Kato, chairman of the Japanese Bankers Association, also said at a July 16 news conference that if funds move excessively from bank deposits into individual government bonds, it could affect the supply of growth capital.

In inheritance tax planning, real estate is generally seen as more advantageous than securities, which are valued at market prices in principle, because property is often assessed below prevailing market values. Shungo Koresawa, chief researcher at Daiwa Institute of Research, said that if the gap in inheritance tax treatment between financial assets and real estate is to be corrected, there may be room to consider inheritance tax relief for all assets eligible for NISA.

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