At least half or even more of the huge debt of the Japanese government does not really exist. Even so, the state needs a great deal more. These are two of the arguments made in Tokyo as the government with the largest debt in the developed world in relation to its size, prepares for a new round of spending in the fall that will reach hundreds of billions of dollars.
Japan is often used as a trial site for policies that later appear on the stage of the world’s largest economy, the United States. US Federal Reserve.
Leads the herd
Also in terms of debt, Japan leads the herd. Government debt first surpassed the size of the entire economy some 20 years ago. Now the U.S. is also crossing that threshold, and Congress is discussing additional trillions of dollars in spending.
The central government in Tokyo already today has to pay nearly $ 10 trillion to its creditors. That sounds like a huge amount that can not be raised by a government that collects less than $ 600 billion in taxes every year. But these days, economists are mostly talking about the danger of maintaining a low debt ceiling.
Takoli Aida, an economist at Okasan Securities, said the government should increase spending by about $ 30 trillion, equivalent to $ 270 billion, for each year in the foreseeable future, and increase the annual budget by about 30 percent.
That money is needed, Aida said, because companies stifled economic growth as they sat on their savings, even before the corona plague and especially today. When consumers are also worried, it leaves the government as the only player that can raise demand and shock the economy that will come out of its laziness, he said.
“If companies are not going to use their money, the government should do us a favor and use it,” he said. “In this country, there is simply no chance of a debt crisis happening.“
A fearless country
For many in the “big spending camp” in Japan, two related points support the notion that debt is not what it seems. First, it is all counted in Japan’s local currency, the yen. Second, about half of it is owned by the central bank, part of the same government that initially produced it.
By lending money only in the yen currency, Japan is reminiscent of the US, borrowing its currency, and different from Greece, borrowing in euros, a currency beyond its control. The presidency of Argentina, it will be possible to turn on Japan’s silver printers to please creditors.
This is the claim made by former cabinet minister Sana Takaichi, who recently ran against Prime Minister Yoshihida Soga, to lead the Liberal Democratic Party.
“Japan is one of those blessed countries that has no fear of default because it can produce government debt in its own currency,” Takaichi said in written answers to questions posed by the Wall Street Journal. “If the government spends money by going into debt, the amount of money will increase. Government debt growth is growth in people’s assets.“
Of course, producing too much money can lead to inflation. Takaichi said her spending plan would continue until prices rose consistently by 2 percent a year. Inflation is currently around zero.
Soga’s role is challenged in general elections that must take place by November, and senior ruling party officials have said he is planning his own aid program. As the Corona Delta strain spreads across the country, the genre’s support rate has plummeted sharply and it must present a generous package in order to maintain power, says economist Naoya Ushikovo of Export Property Management Company.
Someone will have to buy the bonds that will fund this expense, but the yield on 10.year government bonds remains at almost exactly zero. There is always a bigger buyer waiting on the side: the Bank of Japan.
Through an asset.buying assistance program known as “Quantitative Relief,” the Bank of Japan already owns about half of the government bonds, a larger amount than the Fed, which has about one.fifth of the U.S. national debt.
Yoichi Takahashi, a professor at Katsu University who advised the Suga government until earlier this year, noted that the interest paid by the government to the central bank is making a comeback to the government, and expired bonds are rolling. “This is 500 trillion yen that in practice has no interest on it and never needs to be repaid,” he wrote this year.
Anyone who holds hawkish fiscal positions is not yet convinced. “If long.term interest rates rise sharply, compared to other countries, Japan is unlikely to avoid a fiscal crisis,” wrote economist Riotaro Kono of PNB Paribas in July.
Oshikubo, the economist from an export fund, said the state could consider tightening such a belt in the medium to long term. How long? “In about 20 to 30 years,” he said.