This has been said above again and again, Japan ownes its fiscal debt to japanese people via postal savings and japanese financial companies (pension funds, banks, insurance) who buy JP bonds every year.
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It's good to expect high growth and the BOJ and other advisors are very smart people surely but the same folks in Cabinet office said that the primary budget deficit will be 4.2% of nominal GDP by 2020 even if Japan achieve around 1.5% every year this decade.
This year the growth will be 2.5% but the growth is likely to be low due to the tax hike next year, and the shrinking and graying population is going to hamper any effort to achieve sustainable high growth above 2%. The US is completely different due to high immigration rate.
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Historically there are two commons ways of eradicating the massive debt that the governement could not pay back to lenders: (1) create inflation (QE + currency devaluation) or (2) restructuring the debt. The Abenomics adopt the approach (1): QE (massive injection of money) and currency devaluation. The objective behind of achieving 2% inflation while continuing to borrow at 0.8% rate for 10 years bond) is part of this intention of it, and time will tell whether the japanese lenders (pension funds, public postal savings) will accept to lend to government at interest rate lower than inflation rate. I doubt because the pension funds need to pay to the 1950's baby boom who is going to retire massively.
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Some basic facts: the budget deficit was 9.2% of GDP last year, and since every year roughly 40% of the government spending has been covered by borrowing via JP bonds, and most of the spendings are for basic expenses (paying public servants, and other social spendings), while wasteful public constructions is a small part of it. This permanent deficit is not sustainable because japanese savings size is about 300% equal to GDP, and cumulated deficit is 240% of GDP, and that's mean merely 60% of GDP savings left for future borrowing. How many years could they continue to borrow before final crisis ? probably 7 years more (9% of GDP deficit per year x 7 = 63% of GDP). Indeed the japanese 1950's baby boom generation is about to retire massively, the japanese pension funds need to pay, and thus cannot afford to lend the money to the government at this low rate of 0.8%.
That's why they (finance bureaucrate, politician) start to consider to raise consumption tax, and sooner or later the tax hike will likely to continue after 2020s to reach the current level of 19% -20% in Europe (France, Germany) unless they decide to cut public servants pay and reduce social expenses !. The Keidanren is against such tax hike because small and medium japanese companies are too dependent on domestic market. Those companies must go global otherwise they will suffer because japanese people will start to spend less because of high tax. Softbank bought Sprint-Nextel because they know the domestic spending outlook will be grim in Japan
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