The IMF Country Reports Series covers economic and financial developments and trends in member countries. Each report, prepared by a staff team after discussions with officials of the country, is published at the option of the member.
International Monetary Fund. Asia and Pacific Dept
INTERNATIONAL MONETARY FUND
This Selected Issues paper examines implications for long-term bond yields in case of Japan. The analysis finds that so far, upward pressure on interest rates from high public debt has been offset by domestic factors, including a stable investor base with a preference for safe assets. As these effects could decline with population aging, yields could rise unless reforms are implemented to stimulate growth and reduce the public debt-to-GDP ratio. In such a scenario, long-term Japanese government bond rates would remain relatively low and stable. The paper also analyzes to what extent rising health care spending poses a fiscal risk to Japan's economy.