TOKYO (Reuters) – Japan’s finance ministry has raised the coupon rate for 10-year Japanese government bonds (JGBs) at an auction held on Thursday. This is the highest since December 2014.
Interest rates on 10-year government bonds due Friday rose to 0.5% from 0.2% previously, the first increase since April last year.
The rise in interest rates reflects the rise in long-term interest rates since the Bank of Japan last month decided to extend the allowable range of its 10-year yield target to around 0%.
Japan’s long-term interest rates have been creeping higher since the Bank of Japan surprised markets last month by widening its target range for 10-year bond yields.
Rising coupon rates could further squeeze interest payments on Japan’s massive public debt, more than 2.5 times the size of the world’s third largest economy. That’s still below the 1.1% interest rate that the Treasury Department set when it drafted next year’s state budget.
Higher coupon rates may put more pressure on governments, but investors will benefit from higher returns on fixed income investments.
A Pentagon official said, “We decided to raise the interest rate after considering market conditions so that the market can stably absorb the government bonds.”
The 10-year JGB coupon rate has been 0.1% since March 2016, when the Bank of Japan adopted a negative interest rate policy, but will rise to 0.2% in March 2022. It reached a peak of 7.9% in 1990.
