JAPAN TIMES


 

 
Japan's interest rates could soon exceed the economic growth rate, and this could, in theory, make it more difficult for the country to contain the national debt and for Prime Minister Sanae Takaichi to aggressively pursue her economic ambitions.
 
Gross domestic product has been growing about 0.5% a year over the past decade and likely grew 1.3% in 2025, according to the OECD.

The Bank of Japan's policy rate is currently 0.75%, and the 10-year Japanese government bond is trading at 2.4%, near a 29-year high.
 
“It wouldn’t be surprising if interest rates naturally rise to around 3% by fiscal 2027,” said Saisuke Sakai, a senior economist at Mizuho Research Institute, which operates under Mizuho Bank.
 
Takaichi wants to make investments needed to boost economic growth, and her agenda is supported by the Liberal Democratic Party's supermajority in the Lower House. 
 
“The Takaichi administration is committed to ending the chronic underinvestment in the future and to shifting away from a mindset of excessive fiscal austerity,” the prime minister has said.
 
To keep the national debt under control, she is counting on an economic theory proposed by American economist Evsey Domar in 1944, which says that when the nominal economic growth rate is greater than the nominal interest rate on government debt, the debt-to-GDP ratio will stabilize.