National debt of Japan
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As of September 2022, the Japanese
public debt A country's gross government debt (also called public debt, or sovereign debt) is the financial liabilities of the government sector. Changes in government debt over time reflect primarily borrowing due to past government deficits. A deficit oc ...
is estimated to be approximately 9.2 trillion US Dollars (1.28 quadrillion
yen The is the official currency of Japan. It is the third-most traded currency in the foreign exchange market, after the United States dollar (US$) and the euro. It is also widely used as a third reserve currency after the US dollar and the e ...
), or 266% of GDP, and is the highest of any developed nation. 43.3% of this debt is held by the Bank of Japan. Japan's asset price bubble collapse in 1991 led to a prolonged period of economic stagnation described as the "lost decade", with GDP falling significantly in real terms through the 1990s. In response, the Bank of Japan set out in the early 2000s to encourage economic growth through the non-traditional policy of
quantitative easing Quantitative easing (QE) is a monetary policy action whereby a central bank purchases predetermined amounts of government bonds or other financial assets in order to stimulate economic activity. Quantitative easing is a novel form of monetary pol ...
. By 2013, Japanese
public debt A country's gross government debt (also called public debt, or sovereign debt) is the financial liabilities of the government sector. Changes in government debt over time reflect primarily borrowing due to past government deficits. A deficit oc ...
exceeded one quadrillion
yen The is the official currency of Japan. It is the third-most traded currency in the foreign exchange market, after the United States dollar (US$) and the euro. It is also widely used as a third reserve currency after the US dollar and the e ...
(US$10.46 trillion), which was about twice the country's annual
gross domestic product Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjective nature this measure is oft ...
at that time, and already the largest debt ratio of any nation. The public debt of Japan has continued to rise in response to a number of challenges, including but not limited to the
Great Recession The Great Recession was a period of marked general decline, i.e. a recession, observed in national economies globally that occurred from late 2007 into 2009. The scale and timing of the recession varied from country to country (see map). At ...
in 2008, the Tōhoku earthquake and tsunami and
Fukushima nuclear disaster The was a nuclear accident in 2011 at the Fukushima Daiichi Nuclear Power Plant in Ōkuma, Fukushima, Japan. The proximate cause of the disaster was the 2011 Tōhoku earthquake and tsunami, which occurred on the afternoon of 11 March 2011 ...
in 2011, and the
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in between January 2020 and October 2021, (which also held ramifications for Tokyo's hosting of the 2020 Summer Olympics). In August 2011,
Moody's Moody's Investors Service, often referred to as Moody's, is the bond credit rating business of Moody's Corporation, representing the company's traditional line of business and its historical name. Moody's Investors Service provides internationa ...
rating cut Japan's long-term sovereign debt rating by one notch to Aa3 from Aa2 in line with the size of the country's deficit and borrowing level. The large budget deficits and government debt since the 2008-09 global recession and the Tohoku earthquake and tsunami in March 2011 contributed to the ratings downgrade. In 2012, the Organisation for Economic Co-operation and Development (OECD) Yearbook editorial stated that Japan's "debt rose above 200% of GDP partly as a consequence of the tragic earthquake and the related reconstruction efforts." Former Prime Minister
Naoto Kan is a Japanese politician who was Prime Minister of Japan and President of the Democratic Party of Japan (DPJ) from June 2010 to September 2011. Kan was the first Prime Minister since the resignation of Junichiro Koizumi in 2006 to serve for ...
called the situation "urgent" due to the ballooning debt.


Addressing public debt

In order to address the Japanese budget gap and growing national debt, the Japanese National Diet, at the urging of Prime Minister Yoshihiko Noda of the
Democratic Party of Japan The was a centristThe Democratic Party of Japan was widely described as centrist: * * * * * * * to centre-left liberal or social-liberal political party in Japan from 1998 to 2016. The party's origins lie in the previous Democratic ...
(DPJ), passed a bill in June 2012 to double the national
consumption tax A consumption tax is a tax levied on consumption spending on goods and services. The tax base of such a tax is the money spent on consumption. Consumption taxes are usually indirect, such as a sales tax or a value-added tax. However, a consumpti ...
to 10%. This increased the tax to 8% in April 2014. The originally scheduled 10% tax increase to be implemented in October 2015 was delayed until at least October 2019. The final increase to 10% was implemented on October 1, 2019. The goal of this increase was to halt the growth of the public debt by 2015, although reducing the debt would require further measures. The DPJ subsequently lost control of the Diet in late 2012, and Noda's successor
Shinzo Abe Shinzo Abe ( ; ja, 安倍 晋三, Hepburn: , ; 21 September 1954 – 8 July 2022) was a Japanese politician who served as Prime Minister of Japan and President of the Liberal Democratic Party (LDP) from 2006 to 2007 and again from 2012 to 20 ...
of the Liberal Democratic Party implemented the "
Abenomics refers to the economic policies implemented by the Government of Japan led by the Liberal Democratic Party (LDP) since the December 2012 general election. They are named after Shinzō Abe, who served a second stint as Prime Minister of Japa ...
" program, which involved an additional 10.3 trillion yen of economic stimulus spending to balance out the negative impact of the consumption tax increase on economic growth. Abenomics led to rapid appreciation in the Japanese stock market in early 2013 without significantly impacting Japanese government bond yields, although 10-year forward rates rose slightly. Around 70% of Japanese government bonds are purchased by the Bank of Japan, and much of the remainder is purchased by Japanese banks and trust funds, which largely insulates the prices and yields of such bonds from the effects of the global
bond market The bond market (also debt market or credit market) is a financial market where participants can issue new debt, known as the primary market, or buy and sell debt securities, known as the secondary market. This is usually in the form of bonds, bu ...
and reduces their sensitivity to credit rating changes. Betting against Japanese government bonds has become known as the "widowmaker trade" due to their price resilience even if
fundamental analysis Fundamental analysis, in accounting and finance, is the analysis of a business's financial statements (usually to analyze the business's assets, liabilities, and earnings); health; and competitors and markets. It also considers the overall sta ...
indicates the contrary should be true. Notwithstanding the stability of the market for Japanese government debt, the cost of servicing Japan's public debt uses up half of the state's tax revenues, and the cost of importing energy in the wake of the 2011 Fukushima disaster has also negatively impacted Japan's longstanding current account surplus.


History

In 1944, during the Pacific War, the amount of governmental debt exceeded by 260%. In 1947, during postwar economic chaos, the amount of bonds the government issued exceeded tax revenue. Later, it was thought that this was the root cause of postwar
inflation In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduct ...
, and the Japanese government enacted the Public Finance Act of Japan in response. The act established a balanced
fiscal policy In economics and political science, fiscal policy is the use of government revenue collection (taxes or tax cuts) and expenditure to influence a country's economy. The use of government revenue expenditures to influence macroeconomic variab ...
by prohibiting: 1) the issuance of
government bond A government bond or sovereign bond is a form of bond issued by a government to support public spending. It generally includes a commitment to pay periodic interest, called coupon payments'','' and to repay the face value on the maturity dat ...
s to cover national debt, and, 2) the Bank of Japan from buying government bonds. Since the establishment of the 1955 System, the amount of held valuable securities in the bank – especially national bonds – had risen significantly. However, the 1965 budget issued 259 billion yen in deficit-covering bonds, and the next year's budget in 1966 allotted 730 billion yen in construction bonds. By 1990, the government did not issue a national bond due to the Japanese asset price bubble. Bonds were issued again in 1994, and have been issued every year since. In 1995 (Heisei 9),
Masayoshi Takemura was a Japanese politician. Elected as a representative of the Liberal Democratic Party, in 1993 he broke away to form New Party Sakigake, before joining the newly formed Democratic Party of Japan in 1997. He served as chief cabinet secretary and ...
, the former
finance minister A finance minister is an executive or cabinet position in charge of one or more of government finances, economic policy and financial regulation. A finance minister's portfolio has a large variety of names around the world, such as "treasury", ...
, declared the ''Declaration of Fiscal Crisis'' by issuing deficit-covering bond with higher frequency.


National bond issuing and economic policy

During the Japanese asset price bubble of the late 1980s, revenues were high due to prosperous conditions, Japanese stocks profited, and the amount of national bonds issued was modest. With the breakdown of the economic bubble came a decrease in annual revenue. As a result, the amount of national bonds issued increased quickly. Most of the national bonds had a fixed interest rate, so the debt to GDP ratio increased as a consequence of the decrease in nominal GDP growth due to
deflation In economics, deflation is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0% (a negative inflation rate). Inflation reduces the value of currency over time, but sudden deflatio ...
. The growth of annual revenue was slowed down by the prolonged depression. Consequently, the governments started issuing additional national bonds to cover the interest payments. This national bond is called ''renewal national bond''. As a result of issuing these bonds, the debt is not actually repaid, and the amount of bonds issued continued to grow. Japan has continued to issue bonds to cover the debt since the asset price bubble collapse. There was the phase that opportunity to act austerity policy rose when the fear for return (repayment) principal of interest was close-upped at any trouble happened. But, the policy was acted, that was the inadequate fiscal action by the government and bring finance under control by the Bank of Japan, when critical recession caused by austerity policy and others. There was the opinion that suggested a fear for general situation of the economic structure, that the Japanese economy experienced deflation caused by
globalization Globalization, or globalisation (English in the Commonwealth of Nations, Commonwealth English; American and British English spelling differences#-ise, -ize (-isation, -ization), see spelling differences), is the process of foreign relation ...
and the growing international
competition Competition is a rivalry where two or more parties strive for a common goal which cannot be shared: where one's gain is the other's loss (an example of which is a zero-sum game). Competition can arise between entities such as organisms, indiv ...
. These factors steered the direction of Japanese economic policy, hence, the perceived harmful impact to the economic strength of the country. With the above-mentioned view point from the mobilizing of finances by the government or the action to monetary squeeze by the BOJ, or, from the view point that it has been deflation recession caused by long termed low demand, there are criticisms that it also cause an effect hurt power of economy the tend to promote increase efficiency of supply side. On the other hand, there are following suggestions for that criticisms: *
Paul Krugman Paul Robin Krugman ( ; born February 28, 1953) is an American economist, who is Distinguished Professor of Economics at the Graduate Center of the City University of New York, and a columnist for ''The New York Times''. In 2008, Krugman was ...
suggested that the opportunity cost of investment has been greater than the ROI, and that the
quantitative easing Quantitative easing (QE) is a monetary policy action whereby a central bank purchases predetermined amounts of government bonds or other financial assets in order to stimulate economic activity. Quantitative easing is a novel form of monetary pol ...
policy has not been effective. He said that printing notes will not work if the country is in a liquidity trap. * , an economist suggested that the issue of decline in the economic growth rate has been beyond the ability of
monetary policy Monetary policy is the policy adopted by the monetary authority of a nation to control either the interest rate payable for very short-term borrowing (borrowing by banks from each other to meet their short-term needs) or the money supply, often a ...
. *
Takatoshi Ito is a Japanese people, Japanese economist. He is a professor of the School of International and Public Affairs, Columbia University and a senior professor of the National Graduate Institute for Policy Studies. Career He graduated from the Fac ...
and , both economist suggested necessity of structural reform to recover from the adverse effect of a monetary policy.


Direct purchase of government bonds by Bank of Japan

A policy was planned and enacted in which the national central bank would directly buy the national bonds. Economist Kazuhito Ikeo stated, "
Quantitative easing Quantitative easing (QE) is a monetary policy action whereby a central bank purchases predetermined amounts of government bonds or other financial assets in order to stimulate economic activity. Quantitative easing is a novel form of monetary pol ...
and debt monetization are different from each other. We must not assume they are the same just because both involve the Bank of Japan buying government bonds. 'Lending money' is clearly different from 'giving money', but we just see the money move from one place to another, and they look exactly the same in that aspect.


The Public Finance Act

The Public Finance Act prohibits the Bank of Japan from buying government bonds directly. Nevertheless, according to the provision, it is allowed to buy when the National Diet approves the bill. These regulations result from reflection that the Bank of Japan brought about violent inflation by their public bond purchases during the period from before to just after the War.


See also

* Monetary and fiscal policy of Japan *
List of countries by public debt Below is a list of countries and territories by government debt , public debt (also called government debt or sovereign debt). ''Gross'' government debt is government financial liabilities that are debt instruments. A ''debt instrument'' is a f ...
* Net international investment position


External links

*


References

{{Economy of Japan, uncollapsed Government of Japan Government finances in Japan Government debt by country