Our website publishes news, press releases, opinion and advertorials on various financial organizations, products and services which are commissioned from various Companies, Organizations, PR agencies, Bloggers etc. These commissioned articles are commercial in nature. This is not to be considered as financial advice and should be considered only for information purposes. It does not reflect the views or opinion of our website and is not to be considered an endorsement or a recommendation. We cannot guarantee the accuracy or applicability of any information provided with respect to your individual or personal circumstances. Please seek Professional advice from a qualified professional before making any financial decisions. We link to various third-party websites, affiliate sales networks, and to our advertising partners websites. When you view or click on certain links available on our articles, our partners may compensate us for displaying the content to you or make a purchase or fill a form. This will not incur any additional charges to you. To make things simpler for you to identity or distinguish advertised or sponsored articles or links, you may consider all articles or links hosted on our site as a commercial article placement. We will not be responsible for any loss you may suffer as a result of any omission or inaccuracy on the website.

S&P warns of possible economic blow, hit to Japan Inc from BOJ rate hike

by Staff GBAF Publications Ltd
0 comment

By Leika Kihara

TOKYO (Reuters) – A future Bank of Japan (BOJ) interest rate hike could affect the country’s sovereign debt rating if firms struggle to absorb rising funding costs, an official at S&P Global Ratings said on Thursday.

Higher borrowing costs could also lead to a downturn in long-term economic growth, S&P said.

Japanese bond yields have crept up on market expectations the BOJ will phase out its yield control policy and start raising interest rates under a new governor who succeeds incumbent Haruhiko Kuroda in April.

While further rises in long-term interest rates could increase Japan’s already large debt burden, such factors are already taken into account in the current “A+” sovereign debt rating, said Kim Eng Tan, senior director of S&P’s sovereign ratings team in Asia-Pacific.

The bigger concern is whether Japanese firms, accustomed to many years of ultra-low interest rates, could absorb higher funding costs that come from tighter monetary policy, he told Reuters in an interview.

S&P expects the BOJ to tighten policy only gradually with the near-term impact on the economy likely limited, Tan added.

But the longer-term effect on Japanese firms and the broader economy is a concern as “we’re now at a stage where interest rates seem to be rising, and there’s quite a bit of uncertainty about how far it will go before it stabilises again,” he said.

Even a 1-2 percentage point increase in interest rates would have a big impact on Japanese firms, particularly those in the service-sector with low profits or high debt, Tan said.

“They’ve been used to a very low interest rate environment for quite a while. So it is really the impact on the economy that could potentially have an impact on our ratings,” he said.

S&P currently assigns an “A+” long-term and “A-1” short-term sovereign debt ratings on Japan. The outlook on the long-term rating is stable.


(Reporting by Leika Kihara; Editing by Kim Coghill)