Japan’s economy is in very deep crisis. The latest figures, reflecting economic performance from the April-June period, reveal official growth at a mere 0.1 percent, according to Japan’s Cabinet Office. This is far worse than even the miserable 0.6 percent that had been forecasted by economists.
The Q2 figures show that Japan is effectively back in an L shaped recession, plagued by domestic price deflation, shrinking internal demand despite massive debt-financed stimulus spending by the government, coupled to an export-killing appreciation in the value of the yen. In sum total, the world’s 2nd or 3rd largest economy (depending on how much trust one has in official Chinese government GDP statistics) is in a terrible state. And that is without even factoring in the growing probability that Tokyo will face a severe sovereign fiscal crisis. That is no mere conjecture; Japan’s prime minister has already warned that his country could face a public debt catastrophe as severe as in Greece.
If Japan is in dire economic straits, it is clear that the global economic crisis is far from ending.
global economic crisis
japan economic crisis, japan economy, japanese debt crisis, japanese economic crisis
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.
global economic crisis
japanese debt crisis, japanese economic crisis, Naoto Kan, sovereign debt crisis