TOKYO, Reuters – A panel of advisors to Shunichi Suzuki, Japanese Finance Minister, warned Friday about a possible spike in interest payments. They urged Japan to adopt sound fiscal policies to prevent higher bond yields.

The warning was made against the background of rising bond yields worldwide, driven by expectation of Federal Reserve-led tightening of policy.

Japan does not experience the same spiralling rise in inflation or wage growth as the United States, but interest rates are still extremely low due to the Bank of Japan’s (BOJ) powerful monetary easing.

A Ministry of Finance official overseeing the panel said that interest rate payments will be most adversely affected.

An increase of 1% in government bond yields will eventually lead to a rise of 10 trillion Japanese yen ($80billion) in borrowing costs. This was the official’s assessment, and it is what the panel advised the minister.

He said, “The yen has been weakening” and that the current balance had entered a deficit. “All these points highlight the growing importance of ensuring firm economic and fiscal policy to gain confidence in currency.

Japan’s remaining balance of bonds is expected to exceed 1,026 trillion Yuen by the end of fiscal year 2023.

U.S. Treasury bonds yields reached multi-year records after this week’s Federal Reserve minutes reinforced market expectations of a rate rise.

The BOJ has a yield curve control policy that guides the short-term interest rate at -0.1%, and the 10-year yield on government bonds around 0%.

This divergence in monetary policies has led to interest rate differentials among Japan and the United States increasing, which tends to increase the value of the dollar against the yen.

($1 = 123.7300 yen)