More on Japan’s finance minister warning of fiscal strain as bond yields hit 15-year high

Japan’s Finance Minister Katsunobu Kato warned that rising bond yields could strain the country’s finances, as the 10-year benchmark yield surged to 1.455%, its highest level since 2009. He noted that higher yields mean increased debt-servicing costs, which could pressure policy spending given Japan’s high debt-to-GDP ratio.

The jump in yields today followed stronger-than-expected inflation data:

• Japan’s Core Inflation Hits 19-Month High, Strengthening Expectations for BOJ Rate Hikes
• Japan January Core CPI 3.2% y/y vs. 3.1% expected

fueling speculation that the Bank of Japan (BOJ) may raise rates sooner than anticipated. While most economists expect the next hike in summer, recent economic growth and hawkish remarks from BOJ board member Hajime Takata have heightened expectations for a faster tightening cycle. We had similar sentiment expressed from an ex-BoJ official overnight:

• ICYMI former BOJ Sakurai hawkish comments: Could be a May hike, sees 1.5% by end FY 2026

Kato refrained from speculating on the cause of the yield increase, while BOJ Governor Kazuo Ueda said he did not discuss it with Prime Minister Shigeru Ishiba during their recent meeting.

Japan’s public debt is projected to reach 232.7% of GDP this year, according to the International Monetary Fund (IMF), raising concerns over the long-term impact of rising borrowing costs.

Fin Min Kato

This article was written by Eamonn Sheridan at www.forexlive.com.