NIIGATA, Japan — The looming standoff over the U.S. debt ceiling is expected to be a major topic of discussion as the financial leaders of the Group of Seven wealthy nations gather in Japan starting on Thursday.

Treasury Secretary Janet Yellen has emphasized the importance of resolving the issue to protect the global economy and maintain America’s economic leadership.

The three-day meeting of finance ministers and central bank governors in Niigata will be followed by a G-7 summit in Hiroshima later this month, with recent bank failures also raising concerns over risks for the global financial system.

Yellen also highlighted the importance of the global financial system and said that the G-7's priority is to strengthen it.

She also emphasized the need to support Ukraine in its conflict with Russia and impose economic costs on Russia. Meanwhile, President Biden expressed confidence that the country could avoid a government default and said that it is not an option to fail to meet America's obligations.

The leaders will meet again on Friday to discuss raising the debt ceiling, which is set to expire soon, and Biden may need to postpone his trip to Japan, Australia, and Papua New Guinea if a deal is not reached. Yellen also praised Biden's investments in modernizing US infrastructure, which she believes will improve the country's resilience and reduce its reliance on global supply chains that were affected by the COVID-19 pandemic.

Yellen stated that the G7 nations are implementing various strategies both individually and collaboratively to reduce inflation, maintain economic growth, and alleviate the impact of external shocks, particularly on developing countries.

In a recent report, the Federal Reserve revealed that U.S. banks have tightened their lending standards for both business and consumer loans in response to the collapse of three major banks, which were partly caused by the central bank's sharp increase in interest rates aimed at curbing soaring inflation.

The Fed's survey of 65 U.S. banks and 19 foreign banks' U.S. branches was conducted in late March and early April, after Silicon Valley Bank and Signature Bank failed, followed by First Republic Bank earlier this month.

Although rate increases are intended to reduce lending and borrowing, they can lead to economic recession if they overshoot their target. Therefore, further limitations on lending by banks could add to the pressure on businesses and consumers.

Inflation has continued to be a problem, with the U.S. seeing a 0.4% rise in consumer prices in April, indicating that further decreases in inflation are likely to be gradual and bumpy, despite an annual increase of 4.9%, the smallest in two years.

Other G-7 economies are also grappling with rising inflation, with their central banks forced to increase interest rates, which had hit record lows during the early stages of the pandemic.

At their recent meeting in Washington, G-7 financial leaders reaffirmed their commitment to assist countries in dealing with the Ukraine conflict's effects, aiding heavily indebted countries to resolve their financial vulnerabilities, strengthening global health systems, and addressing climate change.

Attendees at the Niigata meetings include the European Union, IMF, and World Bank, as well as the finance ministers of Brazil, Comoros, India, Indonesia, South Korea, and Singapore.