Japan warns government debt could push up rates

Bank of Japan (BoJ) policy board member Hidetoshi Kamezaki warned yesterday that the waves of government debt being issued around the world to fund stimulus measures could push up interest rates.

Still, analysts say the steepening yield curve is unlikely to spur Japan's central bank into buying more government bonds as such a move would not do much to curb rises in long-term rates.

Bond yields worldwide have been climbing in the past few weeks, partly on concerns about financial markets' ability to digest all the debt being issued. "There is uncertainty over whether huge government bond issuance could push up interest rates... As such, the risks to the economy and prices are mostly to the downside," Kamezaki said in a speech to business leaders in Shizuoka, southwest of Tokyo.

"It is important to ensure that fiscal discipline and market confidence in monetary policy are maintained," he addd at a news conference.

But he added that it was unclear what was driving yield moves at the moment, echoing doubts expressed by Federal Reserve officials.

"I do not think current interest rate moves are one-sided. On the one hand they a?re moving on expectations about the economic outlook with hopes of it bottoming out. On the other hand, they are reflecting market views about the fiscal outlook."


Assessment upgrade

Japanese Government is likely to upgrade its economic assessment for the second month running in June, effectively declaring that the world's number two economy has hit bottom, the Nikkei daily said yesterday.

In its monthly report to be released in mid-June, the government may drop the word "worsening" in describing the state of Japan's economy for the first time in seven months.

In May, the government said the pace of economic worsening was slowing.

Japan relies on its car and technology firms for growth, and the slide in demand has sent the economy, already in a recession, to its sharpest quarterly contraction.

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