TOKYO—Japan will watch how rising interest rates in Western nations could affect its economy, the finance minister said on Tuesday, as higher bond yields would boost borrowing costs for the industrial world’s heaviest public debt burden.
Shunichi Suzuki made the remark as the parliament’s powerful lower house is set to approve the fiscal 2022/23 budget with a record $940 billion in spending on Tuesday, setting the stage for the budget’s full passage through the legislature in March.
“As interest rates rise, interest payments will rise as well, straining Japan’s budget,” Suzuki told reporters after a cabinet meeting.
“If trust in our fiscal management is called into question, we cannot rule out a possibility that it could have a big impact on policy implementation and people’s livelihoods.”
Japanese government bond (JGB) yields were recently at multi-year highs, partly driven by bets that the Bank of Japan (BOJ) may have to scale back monetary stimulus in response to the tightening campaigns of global central banks. The yields have since retreated somewhat as Ukraine tensions send investors seeking safe-haven assets.
The BOJ stepped into the market this month by offering unlimited bond purchases at a fixed rate to stem a rise in the key 10-year JGB yield toward its implicit 0.25 percent tolerance ceiling under its yield curve control policy.
Suzuki also said Japan will coordinate with the Group of Seven advanced economies in dealing with the Ukraine situation while carefully watching how it could affect its economy.
By Tetsushi Kajimoto