While sovereign debt crisis in EU is sending shockwaves across the globe, Japan continues to silently babysit a huge pile of public debt. Emotional tugs apart, the Japanese policymakers urgently need to wake up, or the noise of the economy’s crash will ensure they do. by Manish k. Pandey
It was broadcasted to the whole world order as the Land of Economic Promises in the 1960s. [It didn’t gain fame as the Land of the Rising Sun for nothing!] Japanese economy had started rewriting the rules that defined global progress and prosperity till then. While the world economy was on a smile ride with a CAGR of 6.1% during the 1960s, the Japanese bandwagon outran it with a growth of 10% (World Bank data). By the end of the 1970s, the country had turned out to be the engine of the world’s new order. Bewildered economists called it a “Japanese miracle”; Japan was unique.
It still is today. With a public debt figure to GDP ratio hovering around the 200% mark, its situation is worse than even the most recent citadel that fell – Greece. The far east nation has perplexed economists, and stranger is the fact that even the most well-read of economists are shooting very few and far warning flares in the Japanese skies. Apparently they don’t consider anything suicidal until the subject is dead. The debt to GDP figure of Japan is way above that of its troubled counterparts in the West (refer chart titled ‘Government debts’ for a comparative look). What’s more? The Bank of International Settlement (BIS) projects (under “a best case scenario”) that Japan’s debt could zoom past 400% by 2040! Despite this horrid situation, there seems hardly an extra wrinkle on the faces of the Japanese government officials. But truth is: Japan is slowly approaching its end. And there is no end to the bad news. Here’s the next in line – Japan’s nominal GDP is almost the same as it was about 15 years ago ($5.58 trillion today as compared to $5.24 trillion in 1995). Unbearable debt amidst close to zero growth in over 15 years – beat that for an awkward macroeconomic situation!
Heavy spending by the government is not only deteriorating country’s long-term fiscal health, but is also gradually turning the Japanese government bonds (JGBs) into a bubble that can burst anytime. In fact, in just three years from now, the total volume of JGBs is likely to exceed Japan’s households’ net monetary assets, the value of which, as of today, stands at roughly $12.03 trillion. The list of headaches doesn’t end here. “Though it’s frightening to consider public debt increasing to more than 100% of GDP, an even greater danger arises from a rapidly aging population,” says a recent report by BIS.
It was broadcasted to the whole world order as the Land of Economic Promises in the 1960s. [It didn’t gain fame as the Land of the Rising Sun for nothing!] Japanese economy had started rewriting the rules that defined global progress and prosperity till then. While the world economy was on a smile ride with a CAGR of 6.1% during the 1960s, the Japanese bandwagon outran it with a growth of 10% (World Bank data). By the end of the 1970s, the country had turned out to be the engine of the world’s new order. Bewildered economists called it a “Japanese miracle”; Japan was unique.
It still is today. With a public debt figure to GDP ratio hovering around the 200% mark, its situation is worse than even the most recent citadel that fell – Greece. The far east nation has perplexed economists, and stranger is the fact that even the most well-read of economists are shooting very few and far warning flares in the Japanese skies. Apparently they don’t consider anything suicidal until the subject is dead. The debt to GDP figure of Japan is way above that of its troubled counterparts in the West (refer chart titled ‘Government debts’ for a comparative look). What’s more? The Bank of International Settlement (BIS) projects (under “a best case scenario”) that Japan’s debt could zoom past 400% by 2040! Despite this horrid situation, there seems hardly an extra wrinkle on the faces of the Japanese government officials. But truth is: Japan is slowly approaching its end. And there is no end to the bad news. Here’s the next in line – Japan’s nominal GDP is almost the same as it was about 15 years ago ($5.58 trillion today as compared to $5.24 trillion in 1995). Unbearable debt amidst close to zero growth in over 15 years – beat that for an awkward macroeconomic situation!
Heavy spending by the government is not only deteriorating country’s long-term fiscal health, but is also gradually turning the Japanese government bonds (JGBs) into a bubble that can burst anytime. In fact, in just three years from now, the total volume of JGBs is likely to exceed Japan’s households’ net monetary assets, the value of which, as of today, stands at roughly $12.03 trillion. The list of headaches doesn’t end here. “Though it’s frightening to consider public debt increasing to more than 100% of GDP, an even greater danger arises from a rapidly aging population,” says a recent report by BIS.
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Source : IIPM Editorial, 2010.
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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