PM Ishiba this week rebuffed calls for tax cuts ahead of July’s Upper House election by arguing that Japan’s fiscal situation is worse than Greece’s. Even though Japan’s government debt is higher relative to output than it ever was in Greece, that comparison is far-fetched. Indeed, our view that long-term bond yields in Japan will keep rising over the coming years mostly reflects our hawkish forecasts for monetary policy rather than mounting concerns over fiscal sustainability.
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