Borrowing costs

Japan’s financial panel warns of rising rates driving up borrowing costs

TOKYO, April 8 (Reuters) – An advisory group to Japan’s Finance Minister Shunichi Suzuki warned on Friday of a risk of higher interest payments on the public debt and called for efforts to secure a policy sound fiscal to hedge against the possibility of rising bond yields.

The warning came amid rising global bond yields, driven by expectations of faster policy tightening from the Federal Reserve and other central banks.

Japan is not experiencing the kind of spiraling rise in inflation and wage growth that the United States and some other countries are facing, while interest rates remain extremely low due to the powerful easing monetary policy of the Bank of Japan (BOJ).

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“What will be most affected in terms of finances will be interest rate payments,” said a Ministry of Finance (MOF) official who oversees the panel.

A 1% increase in government bond yields would ultimately result in a 10 trillion yen ($80 billion) increase in borrowing costs, the official said, outlining the panel’s advice to the minister.

“The yen is weakening and the current account has moved into deficit,” he added. “These underscore a growing need to ensure firm economic and fiscal policies in order to gain confidence in the currency.”

Japan’s government bonds outstanding are expected to reach 1.026 trillion yen by the end of the fiscal year ending March 2023.

Yields on US Treasury bonds hovered near multi-year highs after Federal Reserve minutes this week added to the rate hike momentum already priced into markets.

Under a policy called yield curve control, the BOJ is guiding short-term interest rates to -0.1% and the yield on 10-year government bonds around 0%.

The divergence in monetary policies has caused interest rate differentials between Japan and the United States to widen, which tends to strengthen the dollar against the yen.

($1 = 123.7300 yen)

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Reporting by Tetsushi Kajimoto; Editing by Bradley Perrett

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