Passersby walk at Shibuya Crossing in Tokyo, Japan July 8, 2025. REUTERS/Issei Kato

TOKYO, Dec 11 (Reuters) - Japan's government plans to introduce additional tax breaks to spur corporate investment, the Nikkei business daily reported on Thursday - a move which comes despite growing concerns in financial markets about the country's rising debt.

Tax breaks under consideration include either giving companies a tax credit of up to 7% of capital expenditure or allowing them to immediately start accounting for depreciation on the assets purchased, the Nikkei reported, without citing sources.

Japan's industry ministry declined to comment on the report.

New Prime Minister Sanae Takaichi believes expansionary fiscal policy is needed to boost economic growth. Later in the day, parliament's lower house is set to pass an 18.3 trillion yen ($117 billion) supplementary budget for this fiscal year to fund a massive stimulus package. Most of that will be financed through new debt issuance.

But with debt at more than twice the size of its economy, Japan is widely viewed as needing to fix its tattered public finances. That task has become more urgent as the Bank of Japan is dialling back its decade-long, ultra-loose monetary policy that has kept borrowing costs near zero.

Concerns about debt burden have sent benchmark government bond yields to 18-year highs.

According to the Nikkei, the planned tax breaks are set to be included in a tax reform outline due to be published later this month. The industry ministry estimates a reduction of around 400 billion yen ($2.6 billion) in annual tax revenue due to the new measure, it said.

To be eligible for the tax break, the capital spending must exceed 3.5 billion yen for large firms and 500 million yen for small and mid-sized businesses, and have a projected return on investment of more than 15%, the Nikkei added.

The government has set the target of doubling annual capital expenditure to 200 trillion yen by 2040. After decades of deflation, annual capital spending in the world's fourth-largest economy exceeded 100 trillion yen in the past fiscal year for the first time in 32 years.

The new incentives would fall under so-called special tax measures. While pursuing a reflationary policy, Takaichi's administration has also said it plans to cut wasteful spending and has set up a panel which aims to act like the now-disbanded U.S. Department of Government Efficiency (DOGE) which is reviewing such special tax measures.

The Nikkei has previously reported that the government plans to trim tax incentives on research and development costs, while boosting such tax breaks for companies in fields such as artificial intelligence and quantum technology.

($1 = 155.8400 yen)

(Reporting by Makiko Yamazaki; Editing by Edwina Gibbs)