Japan’s debt dilemma may doom any FX intervention, Brooks says (2024)

FAQs

How did Japan get so much debt? ›

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.)

As of December 2023, the Bank of Japan held 53.8 percent of outstanding Japanese Government Bonds (JGBs). While Japan's central bank held the largest share of JGBs, households accounted for 1.2 percent of JGB holders.

Japan External Debt reached 4,487.9 USD bn in Dec 2023, compared with 4,365.5 USD bn in the previous quarter. Japan External Debt: USD mn data is updated quarterly, available from Mar 2003 to Dec 2023. The data reached an all-time high of 4,844.1 USD bn in Dec 2020 and a record low of 1,223.9 USD bn in Mar 2003.

Fiscal Deficit No Longer Falling: We estimate Japan's general government (GG) deficit widened to 4.9% of GDP in the fiscal year ended March 2024 (FY23) after narrowing to 3.6% of GDP in FY22. Revenues soared in FY22, reflecting a post-pandemic boost and a rapid pick-up in inflation, but moderated in FY23.

Japan has the highest percentage of national debt in the world at 259.43% of its annual GDP.

Among other countries, Japan and China have continued to be the top owners of US debt during the last two decades. Since the dollar is a strong currency that is accepted globally, holding a substantial amount of US debt can be beneficial.

All values are adjusted to 2023 dollars. As of January 2023, the five countries owning the most US debt are Japan ($1.1 trillion), China ($859 billion), the United Kingdom ($668 billion), Belgium ($331 billion), and Luxembourg ($318 billion).

Though China owns a large amount of U.S. debt, it isn't the United States's largest creditor. The greatest amount of U.S. debt is owned by the U.S. government, while the largest foreign creditor is Japan. China owns around 2.6% of U.S. debt, which it buys because the Chinese yuan is pegged to the dollar.

In 2023, aggregate local government debt had risen to 92 trillion yuan ($12.58 trillion) and the central government of People's Republic of China ordered its banks to roll over debts in a debt-restructuring. China's gross external debt in 2023 was $2.38 trillion.

Why is Japan's debt not a problem? ›

Due to Japan's low interest rate policies, the returns on bank reserves and government bonds are essentially zero, which suggests that the interest burden on the country's debt is not heavy.

According to the Bank of Russia's estimate, external debt of the Russian Federation as of March 31, 2024 totaled $304.0 billion, having decreased by $12.8 billion, or by 4.1%, since the end of 2023.

Economic Challenges Faced by Japan

An aging population has strained public finances, requiring increased spending on healthcare, pensions, and social security. These mounting expenses have exacerbated the debt burden. Furthermore, Japan's economy has been plagued by a lack of productivity growth and structural issues.

1 – Timor-Leste (75.7% of GDP)

However, since 2012, development has proved to be wildly inconsistent, with the economy contracting 26 percent in 2014, before expanding 20.9 percent the following year.

Japan was released on 10 November 2023, the week of Diwali. The film received mixed to negative reviews from critics as well as from audience and was a Huge Disaster in the box-office.

As of January 2023, the five countries owning the most US debt are Japan ($1.1 trillion), China ($859 billion), the United Kingdom ($668 billion), Belgium ($331 billion), and Luxembourg ($318 billion).

Reparations amounting to US$550 million (198 billion yen) were made to the Philippines, and US$39 million (14.04 billion yen) to Viet Nam. Payment to the International Committee of the Red Cross to compensate prisoners of war (POW) of 4.5 million pounds sterling (approximately 4.54109 billion yen) was made.

Japan's economy navigated a challenging landscape in 2023: After real gross domestic product fell by an annualized 3.2% in the third quarter,¹ the country narrowly avoided recession when real GDP grew by a mere 0.4% in the last quarter of the year.

[2] A report by the credit rating agency S&P Global in 2022 estimated that 79 per cent of corporate debt in China was owed by SOEs (the IMF does not break down the proportion of debt owed by SOEs).