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Investing.com-- Higher Japanese interest rates could increase the government’s debt-financing costs and weigh on spending plans, Prime Minister Shigeru Ishiba warned during a parliamentary address on Monday.
"Japan’s debt-to-gross domestic product ratio is high. When interest rates rise, the cost of funding government debt increases. That could weigh on spending," Ishiba said, according to statements carried by Reuters.
Ishiba also said that large portions of the public were unaccustomed to high interest rates, given that lending rates had remained around zero for nearly a decade.
Ishiba’s warning comes just hours after Japanese first-quarter gross domestic product data was revised upwards, with growth now seen remaining largely steady in Q1 against prior estimates for a sharp contraction.
The reading drummed up hopes that Japan’s economy remained resilient despite increasing trade-based headwinds, with an upward revision in consumer spending also highlighting strength in one of the country’s biggest growth engines.
Recent data showing a bigger-than-expected increase in Japanese consumer inflation also points to more upward pressure for interest rates.
The Bank of Japan had kicked off a rate-hike cycle last year, citing inflationary risks to Japan’s economy after nearly a decade of ultra-loose policy. But the central bank had faced resistance from the government on the matter, with concerns over public perception, growth headwinds, and the impact on government spending.
Still, traders were seen raising their bets for a 25 basis point hike by the BOJ in July, especially if inflation continues to trend higher.