The yield on 10-year government bonds (hereafter “long-term interest rates”), which fell to 0% or even into negative territory during the era of quantitative easing, has risen to 2.1% as of this writing. Predictably, biased media flagship outlets like Toyo Keizai and the Nikkei Shimbun are clamoring about “fiscal anxiety.” While I also oppose the reckless expansion of fiscal spending, I must ask: so what if it’s 2.1%? The signaling function of interest rates was lost for a long time due to quantitative easing during the Abenomics era, but it is perfectly natural for long-term rates to rise if expectations for future economic growth increase.
In fact, within the G7, Japan’s long-term interest rate remains the lowest. As of this writing, the next lowest is Germany at 2.8%, yet that country’s economy is currently in shambles. If Japan’s 2.1% is a “problem,” are they suggesting that Germany is on the verge of collapse?
Real GDP Growth Rates (2025 figures are IMF forecasts)
2023 2024 2025
Japan +1.2% +0.1% +1.1%
Germany ▲0.9% ▲0.5% +0.2%
Looking back at 1997, the year the Japanese economy took a decisive turn for the worse, the long-term interest rate at the end of March—just before the consumption tax hike—was as high as 2.5%. As long as our goal is to stop the “Lost Decades,” long-term interest rates should, and likely will, rise further. For context, rates in France, Italy, Canada, and South Korea are in the 3% range; we should consider a rise to that level as entirely plausible. In the U.S., U.K., and Australia, they are in the 4% range. This illustrates just how foolish it is to cause an uproar over a rate of 2.1%.
Toyo Keizai, the Nikkei Shimbun, and the economists and pundits pampered by the Ministry of Finance will undoubtedly continue their outcry. However, it is nonsensical to raise an alarm while the current account remains in surplus. The economy is by no means overheating. I intend to continue providing timely refutations to these misguided arguments.
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