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.
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