Japan’s finances are becoming increasingly precarious, Finance Minister Shunichi Suzuki warned on Monday, just as markets test whether the central bank can keep interest rates ultra-low, allowing the government to service its debt.
Japan’s public debt is more than double its annual economic output, by far the heaviest burden in the industrialized world.
The government has been helped by near-zero bond yields, but bond investors have recently sought to break the Bank of Japan’s (BOJ) 0.5% cap on the 10-year bond yield, as inflation runs at 41-year highs, double the central bank’s 2% target.
“Japan’s public finances have increased in severity to an unprecedented degree as we have compiled supplementary budgets to respond to the coronavirus and similar issues,” Suzuki said in a policy speech starting a session of parliament.
Suzuki reiterated the government’s aim to achieve an annual budget surplus — excluding new bond sales and debt-servicing costs — in the fiscal year to March 2026. The government, however, has missed budget-balancing targets for a decade.