The Finance Ministry raised the coupon rate on the 10-year Japanese government bonds (JGBs) in an auction held on Thursday, the highest since December 2014, it said.

The coupon-rate on 10-year JGBs, to be issued Friday, would rise to 0.5% from the previous 0.2%, marking the first increase since April last year.

Higher rates reflect rises in long-term rates since the Bank of Japan's decision last month to widen its allowance band for its 10-year yield target around 0%.

Japanese long-term interest rates have crept up since the BOJ stunned markets last month by widening the band around the 10-year bond yield target, a move investors saw as a prelude to a future interest rate hike.

The rise in the coupon rate could further strain interest payments on Japan's massive public debt, which is more than 2½ times the size of the world's No. 3 economy. Although it still undershoots the assumed interest rates of 1.1% the ministry set when it compiled a draft state budget for the coming fiscal year.

While a higher coupon rate could squeeze public finances, it will benefit investors as it brings higher return on their bond investment.

"We have decided to increase the coupon rate taking prevailing market conditions into account so that the market can stably digest JGBs," said a ministry official, who asked to remain unidentified.

The coupon rate of 10-year JGBs was at 0.1% from March 2016, when the central bank adopted a negative rate policy, until March 2022 when it rose to 0.2%. It reached a peak of 7.9% in 1990.