Japan sees rising interest rates expanding its growing debt pile

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TOKYO : Japan raised its estimates for long-term interest rates over the coming few years in twice-yearly fiscal projections issued on Tuesday, following the central bank's move last month to allow 10-year bond yields to move more widely.

The latest projections also showed Japan would miss its key budget-balancing target by the fiscal year ending March 2026, with a larger deficit than the one previously seen last July. The latest projections showed the budget target will be met in fiscal 2026.

Rises in interest rates will test the government's ability to service the industrial world's heaviest debt burden at more than double the size of Japan's annual gross domestic product.

The government has been relying on rock-bottom borrowing costs for a decade under Bank of Japan (BOJ) Governor Haruhiko Kuroda's aggressive monetary stimulus. Despite the intense burst of monetary stimulus and flexible fiscal spending, Japan's economy has only grown on average around 1 per cent in the past decade while Kuroda served at the helm of the central bank.