As of March 2023, the Japanese public debt is estimated to be approximately 9.2 trillion US dollars (1.30 quadrillion yen), or 263% of GDP, [1] and is the highest of any developed nation. [2] [3] [4] [5] 43.3% of this debt is held by the Bank of Japan. [6]
Japan's asset price bubble collapse in 1991 led to a prolonged period of economic stagnation described as the 'Lost Decades', with GDP falling significantly in real terms through the 1990s. [7] In response, the Bank of Japan set out in the early 2000s to encourage economic growth through the non-traditional policy of quantitative easing. [8] [9] By 2013, Japanese public debt exceeded one quadrillion yen (US$10.46 trillion), which was about twice the country's annual gross domestic product at that time, and already the largest debt ratio of any nation. [10] [11] [12] [13]
During the Lost Decades, Japanese public debt has continued to rise in response to a number of challenges, such as the Great Recession in 2008, and as well as two national crises, including the triple disaster (earthquake, tsunami, and nuclear disaster, etc.) in March 2011, and with COVID-19 pandemic and the subsequent recession in between January 2020 and the end of September 2021 in both Heisei and Reiwa periods.
In August 2011, Moody's rating cut Japan's long-term sovereign debt rating by one notch to Aa3 from Aa2 in line with the size of the country's deficit and borrowing level. The large budget deficits and government debt since the global recession of 2008 and triple disaster in 2011, which contributed to the ratings downgrade. In 2012, the Organisation for Economic Co-operation and Development (OECD) Yearbook editorial stated that Japan's "debt rose above 200% of GDP partly as a consequence of triple disaster and the related reconstruction efforts." [14] Former Prime Minister Naoto Kan called the situation "urgent" due to the ballooning debt. [15] [13]
In order to address the Japanese budget gap and growing national debt, the Japanese National Diet, at the urging of Prime Minister Yoshihiko Noda of the Democratic Party of Japan (DPJ), passed a bill in June 2012 to double the national consumption tax to 10%. [16] This increased the tax to 8% in April 2014. [17] The originally scheduled 10% tax increase to be implemented in October 2015 was delayed until at least October 2019. [18] The final increase to 10% was implemented on October 1, 2019. [19] The goal of this increase was to halt the growth of the public debt by 2015, although reducing the debt would require further measures. [20] The DPJ subsequently lost control of the Diet in late 2012, and Noda's successor Shinzo Abe of the Liberal Democratic Party implemented the "Abenomics" program, which involved an additional 10.3 trillion yen of economic stimulus spending to balance out the negative impact of the consumption tax increase on economic growth. [20]
Abenomics led to rapid appreciation in the Japanese stock market in early 2013 without significantly impacting Japanese government bond yields, although 10-year forward rates rose slightly. [21] Around 70% of Japanese government bonds are purchased by the Bank of Japan, and much of the remainder is purchased by Japanese banks and trust funds, which largely insulates the prices and yields of such bonds from the effects of the global bond market and reduces their sensitivity to credit rating changes. [22] Betting against Japanese government bonds has become known as the "widowmaker trade" due to their price resilience even if fundamental analysis indicates the contrary should be true. [21]
The servicing of the national debt cost 22% of the Japanese national budget as of 2023. [23] The cost of importing energy in the wake of Fukushima disaster in 2011 has also negatively impacted Japan's longstanding current account surplus. [20]
In 1944, during the Pacific War, the amount of governmental debt exceeded national income by 260%. [24]
In 1947 during the post-war economic chaos, the number of bonds that the government issued exceeded tax revenue. Later, it was thought that this was the root cause of postwar inflation, and Japanese government enacted the Public Finance Act of Japan in response. The act established a balanced fiscal policy by prohibiting: 1) the issuance of government bonds to cover national debt, and, 2) the Bank of Japan from buying government bonds. Since the establishment of the 1955 System, the amount of held valuable securities in the bank – especially national bonds – had risen significantly. However, the 1965 budget issued 259 billion yen in deficit-covering bonds, and the next year's budget in 1966 allotted 730 billion yen in construction bonds. [25] By 1990, the government did not issue a national bond due to the Japanese asset price bubble. Bonds were issued again in 1994, and have been issued every year since.
In 1995 (Heisei 9), Masayoshi Takemura, former Japanese finance minister, declared the Declaration of Fiscal Crisis by issuing deficit-covering bond with higher frequency. [26]
During the Japanese asset price bubble of the late 1980s, revenues were high due to prosperous conditions, Japanese stocks profited, and the amount of national bonds issued was modest. With the breakdown of the economic bubble came a decrease in annual revenue. As a result, the amount of national bonds issued increased quickly. Most of the national bonds had a fixed interest rate, so the debt to GDP ratio increased as a consequence of the decrease in nominal GDP growth due to deflation.
The growth of annual revenue was slowed down by the prolonged depression. [27] Consequently, the governments started issuing additional national bonds to cover the interest payments. This national bond is called renewal national bond. As a result of issuing these bonds, the debt is not actually repaid, and the amount of bonds issued continued to grow. Japan has continued to issue bonds to cover the debt since the asset price bubble collapse.
There was the phase that opportunity to act austerity policy rose when the fear for return (repayment) principal of interest was close-upped at any trouble happened. But, the policy was acted, that was the inadequate fiscal action by the government and bring finance under control by the Bank of Japan, when critical recession caused by austerity policy and others. There was the opinion that suggested a fear for general situation of the economic structure, that the Japanese economy experienced deflation caused by globalization and the growing international competition. [28] [29] These factors steered the direction of Japanese economic policy, hence, the perceived harmful impact to the economic strength of the country.
With the above-mentioned view point from the mobilizing of finances by the government or the action to monetary squeeze by the BOJ, or, from the view point that it has been deflation recession caused by long termed low demand, there are criticisms that it also cause an effect hurt power of economy the tend to promote structural reform increase efficiency of supply side. On the other hand, there are following suggestions for that criticisms:
A policy was planned and enacted in which the national central bank would directly buy the national bonds.
Economist Kazuhito Ikeo stated, "Quantitative easing and debt monetization are different from each other. We must not assume they are the same just because both involve the Bank of Japan buying government bonds. 'Lending money' is clearly different from 'giving money', but we just see the money move from one place to another, and they look exactly the same in that aspect." [35]
The Public Finance Act prohibits the Bank of Japan from buying government bonds directly. [36] Nevertheless, according to the provision, it is allowed to buy when the National Diet approves the bill. These regulations result from reflection that the Bank of Japan brought about violent inflation by their public bond purchases during the period from before to just after the Pacific War. [37] [38]
The Economy of Japan is a highly developed/advanced social market economy, often referred to as an East Asian model. It is the 4th-largest economy in the world by nominal GDP behind the United States, China, and Germany and the 4th-largest by purchasing power parity (PPP).
The yen is the official currency of Japan. It is the third-most traded currency in the foreign exchange market, after the United States dollar and the euro. It is also widely used as a third reserve currency after the US dollar and the euro.
The Bank of Japan is the central bank of Japan. The bank is often called Nichigin (日銀) for short. It is headquartered in Nihonbashi, Chūō, Tokyo.
In macroeconomics, hard currency, safe-haven currency, or strong currency is any globally traded currency that serves as a reliable and stable store of value. Factors contributing to a currency's hard status might include the stability and reliability of the respective state's legal and bureaucratic institutions, level of corruption, long-term stability of its purchasing power, the associated country's political and fiscal condition and outlook, and the policy posture of the issuing central bank.
A country's gross government debt is the financial liabilities of the government sector. Changes in government debt over time reflect primarily borrowing due to past government deficits. A deficit occurs when a government's expenditures exceed revenues. Government debt may be owed to domestic residents, as well as to foreign residents. If owed to foreign residents, that quantity is included in the country's external debt.
Masaru Hayami was a Japanese businessman, central banker, the 28th Governor of the Bank of Japan (BOJ) and a Director of the Bank for International Settlements (BIS).
Kazuhide Uekusa is a Japanese economist, economic analyst, former senior economist at Nomura Research Institute, and chairman of the Three-Nations Research Institute. He was arrested for sexual offenses in 2004 and 2006.
The Japanese asset price bubble was an economic bubble in Japan from 1986 to 1991 in which real estate and stock market prices were greatly inflated. In early 1992, this price bubble burst and Japan's economy stagnated. The bubble was characterized by rapid acceleration of asset prices and overheated economic activity, as well as an uncontrolled money supply and credit expansion. More specifically, over-confidence and speculation regarding asset and stock prices were closely associated with excessive monetary easing policy at the time. Through the creation of economic policies that cultivated the marketability of assets, eased the access to credit, and encouraged speculation, the Japanese government started a prolonged and exacerbated Japanese asset price bubble.
Yōichi Masuzoe is a Japanese politician who was elected to the position of governor of Tokyo in 2014 and resigned in June 2016 due to the misuse of public funds. He was previously a member of the Japanese House of Councillors and the Japanese Minister of Health, Labor, and Welfare. Before entering politics, he became well known in Japan as a television commentator on political issues.
Kozo Yamamoto is a former Ministry of Finance official, Japanese politician of the Liberal Democratic Party (LDP), a member of the House of Representatives in the Diet. He served as State Minister in charge of: Regional Revitalization; Regulatory Reform; Administrative Reform; City, People, Job-Creation; and Civil Service Reform from 2016 to 2017. Previous posts include Vice Minister of Economy, Trade, and Industry, Chairman of the Judicial Affairs Committee of the House of Representatives, Chairman of the Special Commission on Consumer Issues, and Chairman of the Special Commission on Regional Revitalization.
Yodobashi Camera Co., Ltd. is a major Japanese retail chain specializing in electronics, PCs, cameras and photographic equipment.
The Lost Decades is a lengthy period of economic stagnation in Japan precipitated by the asset price bubble's collapse beginning in 1990. The singular term Lost Decade originally referred to the 1990s, but the 2000s and the 2010s have been included by commentators as the phenomenon continued.
The "Truly Strong Universities" is a ranking of Japan's top 100 universities by publisher Toyo Keizai released annually in its business magazine of the same name.
Haruhiko Kuroda is a Japanese banker and a former Ministry of Finance government official who served as the 31st Governor of the Bank of Japan (BOJ) from March 2013 to April 2023 and is currently a Professor at the National Graduate Institute for Policy Studies (GRIPS). From 2003 Mr Kuroda served as Special Advisor to the Cabinet of Prime Minister Koizumi, while teaching economics and finance as a Professor at the Hitotsubashi University Graduate School of Economics. He was formerly the President of the Asian Development Bank from 1 February 2005 to 18 March 2013.
Abenomics refers to the economic policies implemented by the Government of Japan led by the Liberal Democratic Party (LDP) since the December 2012 general election. They are named after Shinzō Abe (1954–2022), who had been appointed as Prime Minister of Japan on his second term from 2012 to 2020. Abe was the longest-serving prime minister in Japanese history. After Abe resigned in September 2020, his successor, Yoshihide Suga, stated that his premiership would focus on continuing the policies and goals of the Abe administration, including the Abenomics suite of economic policies.
Takafusa Nakamura was a Japanese economist.
Basic Policies for Economic and Fiscal Management and Reform, commonly referred to by a term which literally translates to "Big-Boned Policy", is a set of policy guidelines used by the Japanese government to draft policy on economic and fiscal management. First proposed by the Liberal Democratic Party in 2001, it is formulated annually by the Council on Economic and Fiscal Policy. The initiative was abandoned by the Democratic Party of Japan in 2010, but revived in 2013 under the Shinzō Abe's administration.
Naomichi Suzuki is a Japanese politician who currently serves as Governor of Hokkaidō. He previously served as mayor of Yūbari city for two consecutive terms from 2011 to 2019. He had also served in Regional Sovereignty Strategy Office of Cabinet Office and as a chief of General Affairs Division in General Affairs Department at Tokyo Governor's Office.
Novel Coronavirus Expert Meeting is a Japanese advisory body established in the New Coronavirus Infectious Diseases Control Headquarters of the Japanese Cabinet.
Kazuo Ueda is a Japanese economist who has been serving as the 32nd Governor of the Bank of Japan (BOJ) since April 2023.
すべて、公債の発行については、日本銀行にこれを引き受けさせ、又、借入金の借入については、日本銀行からこれを借り入れてはならない。但し、特別の事由がある場合において、国会の議決を経た金額の範囲内では、この限りではない。