Japan's Economy
Japan's Mountain of Debt
Why Japan's government debt exceeds 200 percent of GDP without a crisis so far, and what risks rising rates could bring.
Japan’s government debt is the highest among rich countries.
The size
Gross government debt is around 230 to 250 percent of GDP, according to IMF estimates.
Why so high
- Stimulus spending after the bubble burst.
- Social security costs for an ageing population.
- Low tax revenue growth.
Why no crisis so far
- Domestic ownership: most debt is held by Japanese investors and the BOJ.
- Low interest rates kept costs manageable.
- Large private savings.
- Japan borrows in its own currency.
Risks
- Rising rates increase interest costs.
- Ageing reduces savings over time.
- Markets could lose confidence.
Consumption tax
Japan raised its consumption tax from 5 percent to 8 percent (2014) and 10 percent (2019) to fund social security. Each hike slowed consumer spending.
Comparison
Greece’s debt caused a crisis at lower levels because it borrowed in euros, a currency it couldn’t print, and relied on foreign lenders.
A Japanese pension fund buys government bonds, and the BOJ holds many more. Because debt is owed mostly to Japanese institutions, foreign panic is less of a threat.
Domestic ownership, own-currency borrowing and low rates helped Japan so far.
- Japan's government debt is around 230 to 250 percent of GDP.
- Domestic ownership and low rates avoided a crisis.
- Rising rates and ageing are risks.
- Consumption tax rose to 10 percent by 2019.
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