http://wallstreetpit.com/102203-why-hasnt-japans-massive-government-debt-wreaked-havoc-yet/
One of the most surprising graphs I saw while in class was one that showed the debt to GDP ratio of several OECD countries. While the USA and Britain certainly had high ratios, the Japanese had debt that comprised 219% of GDP, an almost comically massive number, and based on what I've learned in economics, totally unsustainable. So the question I'm hoping to answer is why has Japan not descended into chaos, or at least had issues with its credit rating or balance of trade?
There are a number of factor in the Japanese economy that make it very different to most Western countries. Chief among these is the incredibly high domestic savings rate. Within Japan this is used by banks and government institutions to purchase government bonds and securities, allowing it to fund and service the massive debt. In addition to having an economy capable of handling much more public debt than most, in 2007 and onward Japan received a massive influx of foreign purchases of short-term government securities, further enabling the government to maintain such high debt levels. Such activity was motivated by the financial crisis and the relative stability of Japanese securities compared to those in Western markets.
However, all of this, the high saving and foreign investment is only a short term measure. For Japan to really address the problem more serious measures must be taken, and political pressure is mounting in Japan for something to be done. While it seems incredibly unlikely that Japan is going to go into some kind of economic disaster as as results, something must happen eventually.
My question is what? Will Japan have its usually bulletproof credit rating downgraded? Will taxes be raised to avert disaster? Japan seems as prepared as anyone to tackle such a massive problem, but it remains unclear whether it will happen before serious consequences arise.
2 comments:
Recently, Japanese Yen depreciated hence many economists predicted that their economy would improve soon but it really doesn't. Their growth rate was less than 1%. Japan is currently facing many political issues with some countries, for example) fighting over an island against China and Korea. Having a political issue with China is not very healthy for their exports. In order to reduce this massive debt, they should care more about political issues against other countries.
At least with regard to debt repayment, Japan has been pretty consistent over the years, which is what credit agencies are looking at. While Abe's government is able to control the yen's deflation rate, they should remain able to appease lenders abroad.
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