Japan sees rising interest rates expanding its growing debt pile

By Tetsushi Kajimoto TOKYO (Reuters) - 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% in the past decade while Kuroda

served at the helm of the central bank. Now, bond investors recently attempted to break the BOJ's 0.5% cap on the 10-year bond yield, as inflation runs at 41-year highs of

4%. "We see underlying interest rates to be somewhat higher, which will cause outstanding government debt to deviate upward due to the BOJ's move last month," a Cabinet

Office official said. "We expect underlying rate levels to stay." Long-term rates will rise from 0.3% seen this fiscal year to 0.4% in 2023-2025 before rising eventually to

3.1% in fiscal year 2032, at the end of the forecast period, the projections showed.