Why Japan’s new fiscal era matters for advanced economies and Asean

THE Bank of Japan (BOJ) appears increasingly likely to raise interest rates again, even as the government advances a 370 trillion yen (US$2.3 trillion) multi-year investment programme focused on economic security, artificial intelligence and next-generation industries.

Together, these developments capture Japan’s core challenge: restoring growth amid higher interest rates and record public debt. In doing so, Japan is becoming the first major economy to confront the fiscal and financial pressures that many advanced economies are likely to face over the coming decade.

For more than three decades, Japan appeared to defy the conventional rules of public finance. Government debt climbed to unprecedented levels, yet interest rates remained near zero, inflation stayed subdued and markets continued absorbing government bonds.