Japan’s Kato Warns That Higher Bond Yields May Strain Finances

(Bloomberg) — Rising government bond yields may strain Japan’s already tight finances, the nation’s finance minister warned, after the 10-year benchmark yield hit its highest level in 15 years.

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“An increase in long-term yields means higher interest rates and increased debt-servicing costs,” finance minister Katsunobu Kato told reporters on Friday. “This could put pressure on policy spending, given Japan’s high debt-to-GDP ratio.”

Benchmark 10-year bond yields rose Friday to 1.455%, the highest level since 2009, as traders considered the Bank of Japan’s likely rate hike path. The move came after consumer inflation accelerated more than expected in January.

While most economists expect the central bank to wait until summer before hiking rates again, recent data have raised the risk that the tightening cycle might be faster than previously expected.

Those views in the market intensified this week after stronger-than-expected growth figures for the final quarter of last year and some hawkish remarks by BOJ board member Hajime Takata.

Kato refrained from commenting on the possible causes of the yield increase, noting that multiple factors are likely at play.

BOJ Governor Kazuo Ueda said he didn’t discuss yields with Prime Minister Shigeru Ishiba when the pair met Thursday, in their first regular meeting since October.

Japan’s public debt will be 232.7% of gross domestic product this year, according to a report released earlier this month by the International Monetary Fund.

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