Home > global economic crisis > Japanese Economic and Debt Crisis: Is Japan the Next Greece?

Japanese Economic and Debt Crisis: Is Japan the Next Greece?

June 14th, 2010

With a public debt to GDP ratio of about 200%, Japan is the most indebted major economy in the world. If this were the public debt ratio of the United States or the UK, both nations would be experiencing a catastrophic sovereign debt crisis. If this was the public debt correlation in Greece, Athens would already be insolvent and for sale. But until now, Tokyo had the luxury of incurring increasingly heavy debt loads, owing to a nation of patriotic savers willing to loan the government money at absurdly low interest rates. But no longer.

Japan’s workers are being squeezed, and have less income to save. The demographic time bomb, with an aging and decreasing population, means that a point will soon approach when Tokyo must sell the bulk of its bonds in the international sovereign debt marketplace, in competition with America, the UK and Eurozone. Needless to say, the interest rates Japan will have to borrow at will be vastly higher than at present.

Japan’s latest  Prime Minster, in a revolving door of national leaders that plague the country, is Naoto Kan. He recently stated that, “Our country’s outstanding public debt is huge. Our public finances have been the worst of any developed country.”

Kan added that Japan risked becoming the next Greece. Some observers claim that he was exaggerating Japan’s fiscal and debt problems in order to depreciate the value of the yen. However, I don’t think the new Japanese  prime minister was overstating the Japanese debt crisis. He was merely being prophetic. I will only add that Japan’s debt problem is more than a national crisis; it threatens the entire global fiscal architecture. Throw Japan’s massive debt requirements into the global sovereign bond market and yields for all the other indebted nations will spike through the proverbial roof.

Comments are closed.