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The government may see borrowing costs jump unless it contains its growing debt burden, a Bank of Japan Policy Board member warned Wednesday, saying officials can’t allow low bond yields to make them complacent about fiscal policy.

“An event where an increase in borrowing costs would significantly exacerbate public finances wouldn’t be completely unexpected,” Seiji Nakamura said in a speech in Naha, Okinawa Prefecture. “I think we have avoided addressing the problem and have a low sense of crisis because our country has been able to secure funds with lower borrowing costs despite a persistent increase in outstanding public debt.”

The government, already holder of the largest burden in the industrialized world, forecasts its debt may exceed ¥1 quadrillion this year at a time when Europe’s sovereign woes have increased investor scrutiny of public finances. Japan’s credit rating has been cut by Moody’s Investors Service and Standard & Poor’s this year.

“Europe’s debt crisis has raised the Bank of Japan’s alert level,” said Hideo Kumano, chief economist at Dai-ichi Life Research Institute and an ex-BOJ official. “Japan is unlikely to immediately have the same problem as Europe because its debts are domestically financed, but the BOJ knows it’s a possible risk.”

Benchmark 10-year government bonds yield about 1 percent and the nation’s benchmark borrowing costs are below 0.1 percent. Near-zero interest rates have bolstered the appeal of government debt to households and domestic investors, who hold more than 90 percent of Japan’s issuances. Persistent current-account surpluses have also been supportive of the nation’s fiscal position.

“Specific long-term measures to achieve fiscal health must be taken before we lose the trust of the market,” Nakamura said.

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