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Japan's public debt to hit record Y1,024 trillion


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Unfortuantely for Japan, the Tohoku disaster could not have it at a worse time. There were already two parts of a perfect storm in place -- two much debt and a shrinking population and economy. Now add trillions more in re-building costs, and the storm is complete. Especially since the government is clueless on how to turn the counrty around.

-1 ( +3 / -4 )

Looks like we're sitting on some kind of fiscal time bomb here!! About a year ago, I read somewhere that servicing sovereign debt was costing the Japanese government around 40% of its income (tax revenue).... Must be about 10% higher now!!.....

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As necessary as spending for rebuilding is, politicians will take every chance they get to spend even more. And as inefficient as governments are, they'll likely spend double what it would really take to take care of things.

Japan doesn't have much wiggle room when it comes to reducing their debt. The only hope is joining the TPP, lowering corporate taxes to attract business, and hope that revives the economy enough to increase the rax revenues considerably.

-2 ( +1 / -3 )

It's important to note that the vast majority of this debt is owed to Japanese people. This makes the Japanese situation different from the USA and Greece, who owe most of their massive debts to foreigners.

2 ( +3 / -1 )

Hence it makes a joke of the high Yen. The only way out is for the BOJto begin to moneterize part of the debt by cancelling all debt held by the BOJ. This will cause the Yen to fall big time, it will also cause inflation.

The only way out is by inflating out of the situation. Either wait until industry is hollowed out and the Market forces the Devaluation,ortake the initative and lower debt, devalue the Yen and save the industrial base.

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Some day, someone will have to pay for this...whether is current generation or the next...and it will come in the format of higher medical and dental expenses, higher educational expenses (public), higher income and property taxes, and lower pensions. All the while, no one in cabinet has any guts to cut the number of government workers and wipe out zombie organizations and government safe-havens (amakudari).

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On one hand, the Japanese public should be praised & proud of their patriotic faith towards their country ( heavy taxes, govt bonds etc ). On the other hand however, isn't is a bit heavy to carry all these on their shoulders ? Newly born offsprings will have already to shoulder mathematically bigger & bigger shares of the public debt ( 200% of the national GDP, the 3rd biggest, that makes Japan No. 1 ) the minute they see the ( Japanese ) world given the growing debt & the shrinking population.

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Wow - a petayen! That's a thousand gigayen.

It is not as bad as it seems, though: have you seen what interest rates samurai bonds pay? In effect, the government is lent the money for free.

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Japan's public debt is hardly a joke Laguna, and as Conway correctly indicated it is a fiscal time bomb. Checking the list of soverign states by public debt, Japan sits 2nd behind Zimbabwe http://en.wikipedia.org/wiki/List_of_sovereign_states_by_public_debt Interestingly in 2000, one Zimbabwean $ = US$1. Now in Zimbabwe they are printing Trillion dollar notes. I must get back to my Adv Dip. Financial Services studies, to prepare for my move out of here, as the Japanese gov't in their wisdom has made it very difficult for financial planners to help people independently prepare for their financial future, instead of relying on their bankrupt nenkin system. Good luck Japan, a beautiful country and my home over the last 20 years.

-1 ( +1 / -2 )

@jasperandy If the yen drops, many Japanese citizens who have saved their money will be toast. Sure, they don't have billions but with the strong yen the savings of many Japanese citizens account to something. If the yen drops, years of savings will effectively evaporate. I hope whatever solution to Japan's debt problem doesn't result in wiping out savings made by hard-working individuals over many long years.

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As one has mentioned, has anyone checked the interest rates in Japan? I dont own j bonds but idf someone does correct me the interest rate they pay is 1% or less. In other words, almost free for the govt to borrow from its nationals. They can easily invest that money they are borrowing for free earn interest from the international market. All the banks are doing that in Japan, the biggest being Japan Post. In theory they can borrow forever ask any economist. Just as long those bonds are not called in, nothing to worry about at all!

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Japan can afford it.

-2 ( +1 / -3 )

Lucky, Japan is hardly Zimbabwe. Japan has lent money mostly to itself in its own currency at very low interest rates. You'll also notice that inflation is not a particular problem at the moment. A worst-case scenario would simply be a central bank nationalization of the debt.

What is needed is serious, comprehensive reviews of spending priorities. A shrinking population needs no more money need be spent on infrastructure; direct those funds instead towards supporting the elderly. There also exists vast room for increasing government efficiencies - for example, prefectures can be abolished and replaced by larger structures.

Market reactions to Japan show consensus that there is no reason to panic.

1 ( +1 / -0 )

So, minus 11.55 trillion yen to finance reconstruction in Tohoku, where did the other 112 trillion yen disappear to? Why is Japan's debt to GDP ratio something like 220% when it has made vast profits from manufacturing toys and gadgets over the decades?

The article says that the debt will be up by 99.75 trillion yen from just one year earlier. Interest rates for savers in Japan is near zero so if the government is paying the interest on money borrowed domestically (to pay for what?) then why such a huge amount?

Japan doesn't have much wiggle room when it comes to reducing their debt. The only hope is joining the TPP,

Ah, the TPP. Sounds similar to the early days of the EU or NAFTA.

0 ( +0 / -0 )

government finances reconstruction efforts after the March earthquake and tsunami

Should say as the people finances reconstruction efforts after the March earthquake and tsunami.

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gifu -- fair enough. But it is also important to note that the population is shrinking, as are savings, while the servicing cost on the debt continues to rise as the size of the debt rises. So the ability of the Japanese to continue to purchase all this debt is rapidly declining. Then what happens? Certainly no one outside of Japan will buy it for less than 1% interest. So the borrowing costs will have to go up, and, again, up goes the amount needed to service it. So, no, it is no Greece, but it is an unavoidable spiral in the making unless something drastic is done.

-2 ( +0 / -2 )

what would happen if the cancelled the debts? And I always wonder, who will pay for such debts????

-1 ( +1 / -2 )

gifu: It's important to note that the vast majority of this debt is owed to Japanese people. This makes the Japanese situation different from the USA and Greece, who owe most of their massive debts to foreigners.

Americans own the vast majority of American debt.

-3 ( +0 / -3 )

herefornow - it is true that, as the population shrinks, the percentage of debt held by an individual rises - but as over 90% of Japanese debt is owed domestically, so do assets. You're also right that when deficits exceed the ability of the country to pay for them, the game changes dramatically. Steps do need to be taken and most likely will; Japan a decade down the road will most likely be unrecognizable to us today.

I recommend this read for a more comprehensive (and favorable) view of the situation; it helps explain why financial markets are not panicking, even if some individuals are: http://pragcap.com/japans-financial-position-is-better-than-you-think

-1 ( +0 / -1 )

The Japanese nation is less geared, less in debt, than the average family with a mortgage, but all the same the rate of increase in debt is very worrying. There seems to be no stopping the budget deficit and that can't go on forever.

Masaki Yuki's excellent work on the culture of group membership http://lynx.let.hokudai.ac.jp/~myuki/paper/Yuki_2003_Intergroup_comparison_versus_intragroup_relationships_SPQ_Abstract.pdf suggests that Westerners join groups when they identify with an subscribe to the ideal of the group, whereas Japanese join groups when they see an opportunity for mutual benefit and exchange.

It seems to me that often social welfare systems and public employment need idealism to work. The workers need to feel identified with the ethos of their workplace, to be the servant of the general public for instance. Often times however it seems that since there is no financial or other exchange taking place between the customer and provder the forkforce are often not efficient. This is the criticism leveled at social welfare and public organistaions everywhere, but it seems especially true in Japan. On the other hand, the Japanese are very good capitalists: Japanese firms are very good at caryiing for their customers, their see their mutually beneficial relationship as their raison d'etre.

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The BOJ & MOF must be brave, and implement the concept of "Jubilee" debt forgiveness while the Yen remains the strongest hard currency. BOJ should print extra Yen 600 trln, not for fiscal spending, but buy Yen 600 trln of JGBs and retire them immediately. This should be a one off exercise. Outstanding JGBs will fall to a manageable Yen 400 trln, and interest expense ratio will drop from an unsustainable 44% to about 20% of overall govt budget. In this regard, the MOF/govt must make a commitment henceforth to have a balanced budget every year; this law is to be passed constitutionally.

Once the Yen starts weakening, this "Jubilee" debt forgiveness opportunity will slip away. Time for some bravery and out of the box idea to overcome the "slow death" erosion of Japan from fear, pessimism and mountain of debts.

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Reminds me of the New Yorker cartoon with the caption underneath that has a man saying, "I want to take out one of those mortgages on my grandchildren's future."

Or from Orson Welles' movie, Touch of Evil, when he asks a fortune teller, "Read my future for me." She replies, "You haven't got any. Your future is all used up."

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...and I'm STILL only getting 75yen for a dollar???? Does not make sense, or 'cents' either!

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Are we going to be reading in ten years that debt is now 3,000 trillion yen? And things will still probably be exactly how they are now. Low unemployment rate, low crime rate, people shopping endlessly, men getting their eyebrows waxed, women clutching Louis Vuitton bags.

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And by the way, Japan could never enter the EU based on its current finances.

Like it stopped Greece. If you don't have the money, just fabricate, fabricate, fabricate. The EU would bend over in delight if Japan expressed even the slightest interest in joining. Japan is probably going to end up bailing out everyone in the end anyway, just like they did in Ireland (didn't make the news here by the way).

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Printing money is the only way out but the government is stuck in a moralistic view of the economy that prevents it from doing so. Some inflation would address a number of economic problems and also make my housing loan cheaper to repay.

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Japan will be in trouble in 50 years or so.... fewer babies... more old people living a very long time.. do the math on that.

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"Japan’s public debt is expected to swell to a record 1,024 trillion yen as the government finances reconstruction efforts after the March earthquake and tsunami, reports said Saturday".

I am SAD to see that JapanToday left out the Trillion Dollar Eco-Disaster caused by their Nuclear reactors! They are not saying that EVERY reactor is at risk and that is a dis-service to the Japanese People and the World!

The fact is, that all the (shutdown) reactors in Japan are susceptible to Nature fury, anytime, anyplace 24/7/365!

Every reactor in Japan is a potential Trillion Dollar Eco-Disaster waiting to happen despite what the Government is saying, since man cannot predict when (or the size of) the next big Quake, Tsunami or other Disaster will happen!

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Is anyone actually buying JP government debt or does the government just take cash from Japan Post Savings and give back a bond certificate?

Reckless -- bingo. Those saying that Japan's debt is "owned" by Japanese are just playing the denial/euphemism game played all the time in Japan. If Japanese were not so insular and risk-averse, they would be demanding a much higher return on their savings, and then the whole house-of-cards would fall apart. But Japan Post and the government that protects them from any real competition, have an un-holy alliance to keep them in the dark. And as you say, any debt that is over 200% of GDP and takes 40% of the budget just to service the annual cost cannot possibly be good in the long term. No matter who "owns" it.

-2 ( +2 / -4 )

The current debt can be sustained only if:

people accept to receive no interest on their savings (for whatever reason)

people don't start cashing in on their savings

debt service doesn't get significantly higher, reaching or exceeding available income (this requires keeping extremely low interest rates for ever)

Unfortunately, savings rate has dramatically decreased over the last two decades in Japan, because the increasing number of old people need to use their savings and families cannot afford anymore to save as much as their elders did in light of the struggling economy.

If tax revenues decrease (due to decreasing of working population resulting from aging population, no immigration and low female participation in the economy), then debt service will represent an even higher percentage of available income.

Mathematically, Japan will be in serious trouble within 20 years if there is no paradigm change : significantly increased immigration and female participation, lower governmental spending, balanced budget, free trade agreements, increased efficiency of the antiquated portions of the domestic sector, etc...

1 ( +1 / -0 )

(when I write "serious trouble", I mean an scenario a la Argentina in the 90's or the current Greek debacle)

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Reckless -- bingo. Those saying that Japan's debt is "owned" by Japanese are just playing the denial/euphemism game played all the time in Japan. If Japanese were not so insular and risk-averse, they would be demanding a much higher return on their savings, and then the whole house-of-cards would fall apart.

LOL. Herefornow believes that if the population "demands" high interest rates, the financial institutions will cave in and give it to them. Well, I guess that's what happened during the late 80's when the interest rates were at 7%.

The reason that the Japanese population whether it be the financial institutions or the insurance companies buy these debts in record numbers despite getting record low level yields is because of what is termed 過剰貯蓄 which in the simplest form is an increasing disparity between the money held by these insitutuions versus high/moderate investments and loans disbursed. In other words, the money is there to be circulated to the economy but the current economic climate is putting a stop.

Naturally, when the economy picks up, this would result in banks lending and investing more which will result in less available funds for purchase of debts. On the flip side, if the economy was picking up, it would simply mean more tax revenues hence less reliance of debts.

Another thing to note is Japan's personal financial assets is well over 1,400 trillion yen with about 800 trillion yen owned by individuals over 65. Hence, it's as though the government is issuing bonds to finance the pension to these elders and yet these elders are not spending. In fact, one economist had indicated that the increase in government debt coincides with the increase in personal financial assets.

So in essence, "95% owned by Japanese" is simply a net sum zero on the Japan's balance sheet which is very different from Greece, Argentina, or U.S.

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