Japan Exceeds One Million Billion Yen in Debt – "Whatever It Takes" Has Become the Norm.
Japan's debt represents 250% of the country's GDP.
Is money free in Japan? This is the question that foreign observers are entitled to ask themselves as the Japanese Ministry of Finance has just announced that the government's long-term debt has, for the first time, exceeded the symbolic ceiling of one million billion yen, i.e. 7,600 billion dollars.
At the end of March 2022, which marks the end of the fiscal year in the archipelago, this debt reached precisely 1.017 million billion yen, which is more than three times the amount of the debt of a country like France. In its communication, the Ministry of Finance notes that the total public debt of the country, which also includes debts contracted by local governments, now represents a “mountain” of 1,210,000 billion yen (9,200 billion dollars), equivalent to nearly 250% of Japan's GDP.
Each Japanese person carries a theoretical debt of 9.66 million yen ($73K).
A debt that has become consensual in Japan
This level of indebtedness would panic any G7 country. But it is not a matter of debate in Japan. “Public opinion believes that an increase in public spending and a rise in debt are inevitable,” says Kohei Iwahara, an economist at Natixis Japan Securities in Tokyo. “So there is no serious discussion on the subject,” he insists.
The conservative executive has been practicing the “Whatever it takes” approach for years and has come up with huge stimulus packages every time the economy has been hit. It has deployed five of them since the beginning of the COVID-19 pandemic. Since it is already unable, outside of crisis periods, to balance its annual budgets with its tax revenues, which have been eroded by demographic decline and economic stagnation, the executive has been forced each time to resort to debt to support its economy and finance the explosion in social spending (health and pensions) linked to the accelerated aging of its population.
In the fiscal year ending last March, the country saw its debt balance swell by an additional 44,000 billion yen (334 billion dollars). This increase has been going on without interruption since the mid-1990s but has recently accelerated. The milestone of 500,000 billion yen of debt was only passed in 2003, according to the Ministry of Finance.
This exceptional imbalance is only possible because of the structure of the Japanese debt, as Kohei Iwahara explains:
“Japanese households hold most of their savings in bank accounts (48%) and these sums are used by commercial banks to buy Japanese government bonds. Thus, 85.7% of these bonds are held by Japanese investors.”
Not depending on foreign buyers for financing and enjoying the full confidence of its local economic actors, the Japanese government can, on paper, indebt itself as much as it wants.
Bank of Japan behaves like a government subsidiary
Since 2013, the government has also been able to count on the unfailing support of the Bank of Japan (BoJ), which has been buying up its debt massively on the markets as part of its quantitative easing policy. At the end of March 2022, the BoJ held 43.4% of the total public debt in circulation. “The central bank is like a subsidiary of the government,” said Shinzo Abe, the country's former prime minister, in a comment that has put the officially independent institution on edge.
While nothing threatens this model in the short term, analysts point out that the government will have to take into account the changing behavior of its population. As households age, they tend to dip into their bank accounts and thus limit the amount of money available to buy bonds. The government could one day be forced to borrow abroad, which would be more complicated because of its debt level and the very low yields it offers compared to other countries.