Greece’s debt problems may currently be in the spotlight, but Japan is walking its own financial tightrope, analysts say, with a public debt mountain bigger than that of any other industrialized nation.
Public debt is expected to hit 200 percent of GDP in the next year as the government tries to spend its way out of the economic doldrums despite plummeting tax revenues and soaring welfare costs for its ageing population.
Based on this year’s nominal GDP of ¥475 trillion (US$5.1 trillion), Japan’s debt is estimated to reach around ¥950 trillion — or roughly ¥7.5 million per person.
Japan “can’t finance” its record trillion-dollar budget passed last month for the coming year as it tries to stimulate its fragile economy, said Hideo Kumano, chief economist at Dai-ichi Life Research Institute.
“Japan’s revenue is roughly ¥37 trillion and debt is ¥44 trillion in fiscal 2010,” he said. “Its debt to budget ratio is more than 50 percent.”
Without issuing more government bonds, Japan “would go bankrupt by 2011,” he added.
Despite crawling out of a severe year-long recession last year, Japan’s recovery remains fragile with deflation, high public debt and weak domestic demand all concerns for policymakers.
Japan was stuck in a deflationary spiral for years after its asset price bubble burst in the early 1990s, hitting corporate earnings and prompting consumers to put off purchases in the hope of further price drops.
Its huge public debt is a legacy of massive stimulus spending during the economic “lost decade” of the 1990s, as well as a series of pump-priming packages to tackle the recession which began in 2008.
Standard & Poor’s in January warned that it might cut its rating on Japanese government bonds, which could raise Japan’s borrowing costs amid the faltering efforts of Japanese Prime Minister Yukio Hatoyama’s government to curb debt.
The system of Japanese government bonds being bought by institutions, such as the huge Japan Post Bank, has been key in enabling Japan to remain buoyant since its stock market crash of 1990.
“Japan’s risk of default is low because it has a huge current account surplus, with the backing of private sector savings,” to continue purchasing bonds, said Katsutoshi Inadome, bond strategist at Mitsubishi UFJ Securities.
While Japan’s risk of a Greek-style debt crisis is seen as much less likely, the event of risk becoming reality would be devastating, say analysts who question how long the government can continue its dependence on issuing public debt.
“There is no problem as long as there are flows of money in the bond market,” Kumano said. “It’s hard to predict when the bond market might collapse, but it would happen when the market judges that Japan’s ability to finance its debt is not sustainable anymore.”
“And when that happens, the yen will plummet and a capital flight from Japan’s government bonds to foreign bonds will occur,” he said.
Yet others argue that there is no precedent for the ratio of debt to GDP nearing 200 percent being dangerous.
Nomura Securities economist Takehide Kiuchi cited Britain’s government debt in the post-war period “which reached 260 percent, but [the government] didn’t face a debt crisis.”
“There is no answer to the question of what the critical level of debt is for a government to go bust,” he said.
NO-LIMITS PARTNERSHIP: ‘The bottom line’ is that if the US were to have a conflict with China or Russia it would likely open up a second front with the other, a US senator said Beijing and Moscow could cooperate in a conflict over Taiwan, the top US intelligence chief told the US Senate this week. “We see China and Russia, for the first time, exercising together in relation to Taiwan and recognizing that this is a place where China definitely wants Russia to be working with them, and we see no reason why they wouldn’t,” US Director of National Intelligence Avril Haines told a US Senate Committee on Armed Services hearing on Thursday. US Senator Mike Rounds asked Haines about such a potential scenario. He also asked US Defense Intelligence Agency Director Lieutenant General Jeffrey Kruse
INSPIRING: Taiwan has been a model in the Asia-Pacific region with its democratic transition, free and fair elections and open society, the vice president-elect said Taiwan can play a leadership role in the Asia-Pacific region, vice president-elect Hsiao Bi-khim (蕭美琴) told a forum in Taipei yesterday, highlighting the nation’s resilience in the face of geopolitical challenges. “Not only can Taiwan help, but Taiwan can lead ... not only can Taiwan play a leadership role, but Taiwan’s leadership is important to the world,” Hsiao told the annual forum hosted by the Center for Asia-Pacific Resilience and Innovation think tank. Hsiao thanked Taiwan’s international friends for their long-term support, citing the example of US President Joe Biden last month signing into law a bill to provide aid to Taiwan,
China’s intrusive and territorial claims in the Indo-Pacific region are “illegal, coercive, aggressive and deceptive,” new US Indo-Pacific Commander Admiral Samuel Paparo said on Friday, adding that he would continue working with allies and partners to keep the area free and open. Paparo made the remarks at a change-of-command ceremony at Joint Base Pearl Harbor-Hickam in Hawaii, where he took over the command from Admiral John Aquilino. “Our world faces a complex problem set in the troubling actions of the People’s Republic of China [PRC] and its rapid buildup of forces. We must be ready to answer the PRC’s increasingly intrusive and
STATE OF THE NATION: The legislature should invite the president to deliver an address every year, the TPP said, adding that Lai should also have to answer legislators’ questions The Chinese Nationalist Party (KMT) yesterday proposed inviting president-elect William Lai (賴清德) to make a historic first state of the nation address at the legislature following his inauguration on May 20. Lai is expected to face many domestic and international challenges, and should clarify his intended policies with the public’s representatives, KMT caucus secretary-general Hung Meng-kai (洪孟楷) said when making the proposal at a meeting of the legislature’s Procedure Committee. The committee voted to add the item to the agenda for Friday, along with another similar proposal put forward by the Taiwan People’s Party (TPP). The invitation is in line with Article 15-2