The advisory board for the Finance Ministry has flagged the need to pay more attention to the possible adverse impact of inflation and higher interest rates on the nation’s finances as a shift in Bank of Japan policy looms large.
"It will become even more important to manage Japan’s finances responsibly, bearing in mind the risks of a sharp rise in interest rate payments,” the board said in its recommendations to the government Monday. "There is a possibility of entering a different phase in which high inflation and rising interest rates are normal.”
The BOJ is expected to step back from its ultraloose policy next year as inflation continues to overshoot its 2% target. The central bank has already made adjustments to its so-called yield curve control, sending the rate on benchmark bonds to a decade high.