This report does not constitute a rating action. Japan's local government sector can manage the burden of rising long-term interest rates. We believe debt balances will continue easing moderately thanks to higher local tax revenues and ongoing central government support. Japanese long-term interest rates are rising. The Bank of Japan (BoJ) raised the policy rate to 1.25% at the September 2026 monetary policy meeting. Long-term interest rates have risen by over 200 basis points (bps) since the BoJ ended its negative interest rate policy in 2024. The pace of increases accelerated over the past year, briefly exceeding 3%. A sharp rise in rates can worsen debt burdens and fiscal balances through higher interest payments. Local and regional governments (LRGs) in
