Japan Banks Warn Credit Rating Risk Amid Election Debt Surge

Japan faces growing concerns over its credit rating amid rising government bond yields and mounting public debt, ahead of the upcoming upper house election. The chairman of the Japanese Bankers Association, Junichi Hanzawa, warned that uncontrolled debt expansion could jeopardize the government's ability to sell bonds smoothly and risk a credit rating downgrade. Market expectations that opposition parties advocating for increased spending and consumption tax cuts could gain influence have contributed to bond yield increases and investor anxiety. Fitch Ratings highlighted fiscal policy risks, noting that potential tax cuts without offsetting measures could worsen Japan's fiscal deficits and accelerate debt growth, though political resistance may moderate such changes. Recent polls indicate Prime Minister Shigeru Ishiba’s ruling coalition might lose its majority, potentially leading to looser fiscal policies and heightened political instability. Such developments have sparked debate over the timing of a possible sovereign credit rating downgrade, which could negatively impact Japanese bonds, the yen, and equity markets.