DEBT ISSUES IN JAPAN

FORGET EUROPE: IS THE REAL DEBT CRISIS IN JAPAN?

While the world worries about Greece and Spain, Japan also has its share of debt problems. Are financial markets missing the real problem?

Anthony Fensom

The Diplomat, October 30, 2012

Predictions of the date may differ, but the general consensus on Japan remains the same. In a matter of just three to 10 years, the world’s third-biggest economy may start running out of the savings needed to fund its massive public debt.

Is it time to start selling yen, or are the doomsayers off target concerning the world’s biggest creditor nation?

The days of Tokyo’s finance mandarins being admired for their fiscal prudence are long since gone.

According to the International Monetary Fund, Japan’s general government debt first broke above 100 percent of gross domestic product (GDP) in 1997 as the authorities tried to pump prime the economy out of its post-bubble funk.

Ending the credit binge – and its famous “bridges to nowhere” construction projects – has proved challenging for governments dealing with a deflationary downturn, rising welfare costs and dwindling tax revenues.

In 2011, general government gross debt totaled nearly 230 percent of GDP and is projected to reach 245 percent in 2013, with the government’s fiscal deficit currently around 10 percent of GDP.

Net public debt, which subtracts from gross debt government assets such as public pension funds, has also increased tenfold over the past two decades to reach more than 125 percent of GDP.

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