Japan to raise FY2024/25 assumed interest rate after BOJ policy tweak

JAPAN’S Ministry of Finance will raise its assumed long-term interest rate to 1.5 per cent for the fiscal 2024/25 year from a record-low 1.1 per cent this fiscal year, Kyodo news agency reported on Monday (Aug 21).

The upward revision to the rate, which is used to calculate debt interest payments for the annual state budget, is based on rising Japanese government bond yields after the Bank of Japan last month tweaked its ultra-easy monetary policy, Kyodo said.

While the assumed rate tends to be estimated conservatively and is subject to change depending on actual long-term rate moves, any increase adds to strain on the country’s budget, which is set to exceed a record US$782.64 billion with planned rises in defence and social security spending.

Japan carries the industrial world’s heaviest debt burden, at more than twice the size of GDP.

The higher assumed rate would be used to calculate debt-servicing costs when compiling the fiscal 2024/25 budget draft in late December, after sticking to a rate of 1.1 per cent since fiscal 2017.

The BOJ guides short-term interest rates at -0.1 per cent, buying huge amounts of government bonds to cap the 10-year yield around 0 per cent as part of efforts to fire up inflation to its 2 per cent target.

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It said last month it would allow the 10-year bond yield to move up to 1 per cent, having previously raised the cap to 0.5 per cent last December from 0.25 per cent.

The higher assumed rate would be the first increase since fiscal 2007 when the rate rose to 2.3 per cent from 2.0 per cent after the BOJ scrapped its previous zero interest rate policy. REUTERS