Kim Eng Tan, senior director of S&P's sovereign ratings team in Asia-Pacific, said that the expected increase in the cost of borrowing by the Bank of Japan may trigger a revision of Japan's sovereign debt rating if local companies find it difficult to cope with rising financing costs. In addition, tightening monetary policy may cause weaker economic growth in the long term, he added.
"The current A+ sovereign debt rating has already taken into account a possible increase in long-term interest rates and an increase in the debt burden. But uncertainty remains about the ability of Japanese companies to cope with rising financing costs," Kim Eng Tan said, adding that the tightening of monetary policy in Japan is likely to occur gradually, and will have a limited impact on economic growth in the short term.
However, the long-term impact of higher rates on Japanese firms and the economy as a whole is worrying. According to Tan, even an increase in rates by 1%-2% will have a big impact on Japanese firms, particularly those in the service sector with low profits or high debt.