Japan\u2019s interest rates could soon exceed the economic growth rate, and this could, in theory, make it more difficult for the country to contain the national debt and for Prime Minister Sanae Takaichi to aggressively pursue her economic ambitions.<\/p>\n
Gross domestic product has been growing about 0.5% a year over the past decade and likely grew 1.3% in 2025, according to the OECD. The Bank of Japan\u2019s policy rate is currently 0.75%, and the 10-year Japanese government bond is trading at 2.4%, near a 29-year high.<\/p>\n
\u201cIt wouldn\u2019t be surprising if interest rates naturally rise to around 3% by fiscal 2027,\u201d said Saisuke Sakai, a senior economist at Mizuho Research Institute, which operates under Mizuho Bank.\u00a0<\/p>\n
Takaichi wants to make investments needed to boost economic growth, and her agenda is supported by the Liberal Democratic Party\u2019s supermajority in the Lower House.\u00a0\u00a0<\/p>\n
\u201cThe Takaichi administration is committed to ending the chronic underinvestment in the future and to shifting away from a mindset of excessive fiscal austerity,\u201d the prime minister has said.\u00a0<\/p>\n
To keep the national debt under control, she is counting on an economic theory proposed by American economist Evsey Domar in 1944, which says that when the nominal economic growth rate is greater than the nominal interest rate on government debt, the debt-to-GDP ratio will stabilize.\u00a0<\/p>\n
When rates were at or near zero, that was possible, even when growth was slow. Now, with inflation kicking up and trouble in the Middle East further putting pressure on prices, Japan might have more trouble growing out of its debt.\u00a0\u00a0<\/p>\n
In January, the Cabinet Office updated its medium- to long-term economic and fiscal projections. A low-growth scenario shows that long-term nominal interest rates will be higher than the growth rate in fiscal 2027.\u00a0<\/p>\n
Yuichiro Tamaki, the leader of the Democratic Party for the People, asked Takaichi at the Lower House in February whether her fiscal plan would be sustainable if that happens.\u00a0\u00a0\u00a0\u00a0<\/p>\n
Yields have climbed as higher prices put the BOJ under pressure to raise rates and as the war in the Middle East helps fuel inflation with higher oil prices. Even without the Middle East factor, some analysts project that long-term rates will continue to rise going forward, as the BOJ is expected to continue upping rates.<\/p>\n
Sakai noted that risks lie in a natural rate increase turning into a \u201cbad\u201d rate increase as a result of unexpected fiscal expansion, possibly an extra budget, if the war in Iran drags on and negatively affects the economy.\u00a0<\/p>\n
It has been routine for the government to roll out supplementary budgets every year, but the practice has shaken confidence in Japan\u2019s fiscal discipline. Takaichi has said she intends to end the practice…<\/p>\n","protected":false},"excerpt":{"rendered":"Japan\u2019s interest rates could soon exceed the economic growth rate, and this could, in theory, make it more…\n","protected":false},"author":2,"featured_media":44700,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[174],"tags":[1713,235,5312,191,189,654,188,190,358],"class_list":["post-44699","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-boj","tag-budgets","tag-debt","tag-economy","tag-economy-of-japan","tag-gdp","tag-japans-economy","tag-japanese-economy","tag-sanae-takaichi"],"_links":{"self":[{"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/posts\/44699","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/comments?post=44699"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/posts\/44699\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/media\/44700"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/media?parent=44699"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/categories?post=44699"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/tags?post=44699"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}