# S&P warns of possible economic blow, hit to Japan Inc from BOJ rate hike
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2023-02-09
Category: INVESTING
Category URL: https://financedigest.com/category/investing
Meta Title: BOJ Interest Rate Hike Could Impact Japan's Debt Rating
Meta Description: Rising funding costs from a potential Bank of Japan interest rate hike may harm Japanese firms and long-term economic growth, warns S&P Global Ratings.
URL: https://financedigest.com/sp-warns-of-possible-economic-blow-hit-to-japan-inc-from-boj-rate-hikehtml

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By Leika Kihara

TOKYO (Reuters) – 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](https://www.financedigest.com/hotel-investors-should-they-be-worried-about-a-potential-economic-pause-delving-into-inflation-interest-rates-recession-etc.html "‘Hotel Investors – should they be worried about a potential economic pause?’ delving into inflation, interest rates, recession etc") 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](https://www.financedigest.com/analysis-no-china-no-deal-bid-to-break-sovereign-debt-logjams-gets-weary-thumbs-up.html "Analysis-No China, no deal: Bid to break sovereign debt logjams gets weary thumbs up") 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](https://www.financedigest.com/ecbs-centeno-says-interest-rate-close-to-peaking-if-no-new-shocks.html "ECB’s Centeno says interest rate close to peaking if no new shocks"), could absorb higher funding costs that come from tighter monetary policy, he told Reuters in an interview.

S&P expects the [BOJ to tighten policy](https://www.financedigest.com/yen-trims-gains-as-possible-next-boj-governor-says-current-policy-appropriate.html "Yen trims gains as possible next BOJ governor says current policy appropriate") only gradually with the near-term impact on the economy likely limited, Tan added.

But the longer-term effect on Japanese firms and the broader economy is a [concern as “we’re now at a stage where interest rates](https://www.financedigest.com/shares-fall-with-oil-prices-amid-concerns-about-u-s-fed-rate-hikes.html "Shares fall with oil prices amid concerns about U.S. Fed rate hikes") seem to be rising, and there’s quite a bit of uncertainty about how far it will go before it stabilises again,” he said.

Even a 1-2 percentage point increase in interest [rates would have a big](https://www.financedigest.com/stocks-falter-as-economic-worries-nag-nz-delivers-big-rate-hike.html "Stocks falter as economic worries nag, NZ delivers big rate hike") impact on Japanese firms, particularly those in the service-sector with low profits or high debt, Tan said.

They’ve been used to a very [low interest rate](https://www.financedigest.com/interest-rates-are-cut-to-an-all-time-low-what-will-this-mean-for-small-businesses.html "Interest rates are cut to an all-time low. What will this mean for small businesses?") environment for quite a while. So it is really the [impact on the economy that could potentially have an impact on our ratings,”](https://www.financedigest.com/oil-falls-as-earthquake-impact-on-crude-eases-rate-hike-fears-rise.html "Oil falls as earthquake impact on crude eases, rate hike fears rise") he said.

S&P currently assigns an “A+” long-term and “A-1” short-term [sovereign debt](https://www.financedigest.com/sovereign-debtors-creditors-agree-on-steps-to-jumpstart-debt-restructurings.html "Sovereign debtors, creditors agree on steps to jumpstart debt restructurings") ratings on Japan. The [outlook on the long-term rating](https://www.financedigest.com/stocks-euro-gain-amid-divergent-fed-ecb-rate-hike-outlooks.html "Stocks, euro gain amid divergent Fed, ECB rate hike outlooks") is stable.

(Reporting by Leika Kihara; Editing by Kim Coghill)


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