Higher bond yields not a threat to fiscal health yet

We aren’t overly worried about the impact of higher bond yields on Japan’s public finances because rising interest rates are a direct consequence of higher inflation. With the effective interest rate on public debt set to rise only slowly, the net impact of higher interest rates and inflation will remain beneficial for fiscal health over the next couple of years. However, the government will need to tighten its belt to prevent the debt ratio from rising again in the long run.