TOKYO -- Japan's statutory interest rate would fall from 5% to 3% and be subject to revision in 1 percentage point increments every three years under draft legislation before a Justice Ministry council.
Critics argue that 5% is too high compared with market rates. An earlier draft called for revising the rate annually in half-point steps. But this idea was dismissed as inviting confusion.
The ministry plans to propose a bill next year that would usher in the first major changes to the Civil Code's claims section in about 120 years.
The statutory interest rate takes precedence in the absence of other arrangements between creditors and debtors. It is applied as a penalty for overdue payments.
Another use is as a discount rate for calculating damages in wrongful-death cases. Critics say a 5% baseline results in unfairly low compensation for loss of income.
For insurers, higher payouts cut into profits, while a floating statutory rate creates an added administrative burden. Accident insurance premiums may rise as a result of the legal change.