Japan’s Debt: Some Unpleasant Questions…
One of the things that has been troubling me more and more lately is Japan’s colossal debt burden, which is heading towards 200% of GDP. At the moment, the debt burden is existing in an equilibrium of sorts, with Japanese financial institutions seemingly content to keep buying Japanese Government Bonds (JGBs). In a climate of deflation, real yields on JGBs are still reasonably attractive. However, the ongoing willingness of institutions to finance Japan’s debt has created tremendous moral hazards, for it has deterred governments from really making an effort to reduce it.
In light of these circumstances, I pose the following questions, which are discussed this week in Business Monitor Online and in the weekly Emerging Markets Monitor magazine:
- Can the debt burden ever be paid off?
- Is printing more money a viable strategy for the government to pay off its debt?
- How much longer will bondholders be willing to hold JGBs?
- Can they realistically get out of them without causing a bigger crisis?
- What will happen when Japan’s huge savings decline, due to an ageing population?
- Is it too late to cut spending and raise taxes without fatally weakening Japan’s economy?
- What measures would the government take to avoid default?
None of these are pleasant questions, and unfortunately, the answers may be even less so.
