Two linked issues underpin the perception that Japan’s debt isn’t what it looks for many in the country’s big-spending camp. For starters, it is totally denominated in the yen, Japan’s own currency. Second, the central bank, which is part of the same government that issued the debt in the first place, owns nearly half of it.
Who does Japan owe their debt to?
Japan’s debt is equivalent to 200 percent of its gross domestic product, or twice the size of the country’s GDP. To put things in perspective, the US national debt is approximately 80% of GDP.
According to economists, if a country’s debt exceeds 90% of its GDP, it is on the verge of economic disaster. However, Japan’s debt is unique. The Japanese people owe the majority of it in the form of government bonds. The government of Japan owes each of its citizens approximately 7.5 million yen. Because it owes 95 percent of its debt to its own country, its economy is not as vulnerable as it would be if it owed money to other countries.
Is that the case? None of the experts seem to be in agreement. Japan’s debt is a big source of anxiety for people all around the world because it is the world’s third largest economy.
Why the debt is piled so high
There are several explanations for the debt’s high level. One is a series of government stimulus packages to battle the recession, in which the Japanese government borrowed money in the form of bonds from the Japanese people. The only problem was that these ideas didn’t work, and the money had already been spent.
Japan has been one of the world’s major export economies for many years, but its exports have recently plummeted. In 2009, exports plummeted, pushing the debt to new highs. The recession is frequently blamed once more. Other Asian countries stopped buying Japanese goods due to economic difficulties. Things haven’t improved much since 2009.
The demographic situation in Japan is a big reason why so many people are worried about economic disaster. A large proportion of Japanese people are above the age of retirement, putting a strain on the country’s social security system. The birthrate is low, and immigration is minimal. Japan is losing one million people every year.
The economic condition has also been harmed by the damage caused by last year’s earthquake and tsunami.
How to get rid of Japan’s massive debt
On national television recently, Japanese politicians were shown yelling at each other. My Japanese isn’t quite up to the task of following political wrangling, but I assume the national debt is to blame.
Who buys Japan’s debt?
The Japanese National Diet enacted a measure in June 2012, at the request of Prime Minister Yoshihiko Noda of the Democratic Party of Japan (DPJ), to double the national consumption tax to 10% in order to solve the country’s budget deficit and mounting national debt. In April of that year, the tax was raised to 8%. The 10% tax hike that was supposed to go into effect in October 2015 has been postponed until at least October 2019. On October 1, 2019, the final 10% hike went into effect. The purpose of this increase was to halt the growth of the national debt by 2015, albeit debt reduction would necessitate additional measures. In late 2012, the DPJ lost control of the Diet, and Noda’s successor, Shinzo Abe of the Liberal Democratic Party, implemented the “Abenomics” program, which included an additional 10.3 trillion yen in economic stimulus spending to offset the negative impact of the consumption tax hike on economic growth.
In early 2013, Abenomics caused a quick rise in the Japanese stock market without having a large impact on Japanese government bond yields, but 10-year forward rates did rise marginally. Around 70% of Japanese government bonds are bought by the Bank of Japan, with the rest mostly bought by Japanese banks and trust funds, effectively shielding their prices and yields from global bond market fluctuations and reducing their vulnerability to credit rating changes. Because of their price stability, betting against Japanese government bonds has been known as the “widowmaker trade,” despite basic analyses indicating the opposite should be true.
Despite the stability of the Japanese government debt market, the cost of servicing Japan’s public debt consumes half of the country’s tax revenues, and the expense of importing electricity in the aftermath of the Fukushima tragedy in 2011 has also hurt Japan’s long-standing current account surplus.
How much of Japan’s debt does the US own?
According to these figures, Japan owns around 17.7% of all foreign investment in publicly held federal debt in the United States, China owns approximately 15.2%, and the United Kingdom owns approximately 6.2 percent.
What country has the highest debt?
What countries have the world’s largest debt? The top 10 countries with the largest national debt are listed below:
With a population of 127,185,332, Japan holds the world’s biggest national debt, accounting for 234.18 percent of GDP, followed by Greece (181.78 percent). The national debt of Japan is presently $1,028 trillion ($9.087 trillion USD). After Japan’s stock market plummeted, the government bailed out banks and insurance businesses by providing low-interest loans. After a period of time, banking institutions had to be consolidated and nationalized, and other fiscal stimulus measures were implemented to help the faltering economy get back on track. Unfortunately, these initiatives resulted in a massive increase in Japan’s debt.
The national debt of China now stands at 54.44 percent of GDP, up from 41.54 percent in 2014. China’s national debt currently stands at more than 38 trillion yuan ($5 trillion USD). According to a 2015 assessment by the International Monetary Fund, China’s debt is comparatively modest, and many economists have rejected concerns about the debt’s size, both overall and in relation to China’s GDP. With a population of 1,415,045,928 people, China currently possesses the world’s greatest economy and population.
At 19.48 percent of GDP, Russia has one of the lowest debt ratios in the world. Russia is the world’s tenth least indebted country. The overall debt of Russia is currently about 14 billion y ($216 billion USD). The majority of Russia’s external debt is held by private companies.
The national debt of Canada is currently 83.81 percent of GDP. The national debt of Canada is presently over $1.2 trillion CAD ($925 billion USD). Following the 1990s, Canada’s debt decreased gradually until 2010, when it began to rise again.
Germany’s debt to GDP ratio is at 59.81 percent. The entire debt of Germany is estimated to be around 2.291 trillion ($2.527 trillion USD). Germany has the largest economy in Europe.
What country is not in debt?
Brunei is one of the least indebted countries in the world. It has a debt-to-GDP ratio of 2.46 percent, making it the world’s debt-free country with a population of 439,000 people. Brunei is a tiny island nation in Southeast Asia. Despite this, Brunei has been recognized as one of the richest countries in the world due to its oil and gas development. Since gaining independence from the United Kingdom in 1984, the country has experienced remarkable economic growth in the 1990s.
Why can Japan sustain its debt?
To pay for this debt, the Japanese government issues JGBs, or Japanese government bonds. This effectively means that the central bank is financing the government at an ultra-low (or even negative) interest rate, making it more sustainable.
Which country owes the US the most money?
Japan had $1.3 trillion in US Treasury bonds in July 2021, making it the largest foreign holder of the national debt. China is the second-largest holder, with $1.1 trillion in US debt. Both Japan and China want the dollar to remain higher in value than their respective currencies. This keeps their exports to the United States affordable, allowing their economies to thrive.
Despite China’s vows to sell its holdings on occasion, both countries are content to be the largest foreign holders of US debt. When China increased its holdings to $699 billion in 2006, it surpassed the United Kingdom as the second-largest foreign holder.
How much is the Philippine debt?
This demonstrates a willingness to put up with high debt levels in the short run. As the state ran large deficits to combat the epidemic, outstanding government debt increased from 8.2 trillion pesos in 2019 to 10.2 trillion pesos in 2020. The federal debt has risen to 11.9 trillion pesos in the first three quarters of 2021. Despite not knowing the final figures for 2021, the government intends to borrow another 7.5 percent of GDP in 2022 to fund public spending. That, in my opinion, illustrates that Philippine policymakers are not afraid of capital markets punishing them for excessive borrowing. They clearly believe that counter-cyclical public spending is more vital at this moment to stimulate the economy.
Because, unlike Thailand, the Philippines’ current account swung into surplus during the epidemic, the Philippines may feel comfortable running deficits right now. The trade deficit shrank, while foreign remittances from Filipinos living abroad remained stable, implying that the current account will be stronger in 2022 than it was before the pandemic. Because a current account surplus often equals cheaper borrowing costs, this affords Manila some leeway to run deficits. According to the Department of Budget Management, the surplus will remain at 1.5 percent of GDP in 2022, and foreign exchange reserves will rise to $117 billion.
This is one of the reasons why the 2022 budget expects debt servicing costs to fall even as spending and total debt levels rise borrowing costs are likely to remain reasonable for the time being. That might not last indefinitely (especially if the US Federal Reserve raises interest rates soon), which is why it’s critical that any money the Philippines borrows to finance its deficits is spent on things that matter. Infrastructure and education will receive a large portion of investment in 2022, although health and other social services may not have received as much funding as some would like. These are the concerns that will be debated in the Senate before the bill is passed.
But, for the time being, the most important point is that, in 2022, this administration will try to spend its way out of any remaining economic effects of the epidemic, and it will not be hesitant to run deficits or take on debt to do so. If the current account returns to deficit and borrowing costs rise, this newfound debt tolerance may evaporate quickly, and I’m sure policymakers in the Philippines will be watching this closely in the months and years ahead.
Why is Japan so rich?
Japan has one of the world’s largest and most sophisticated economies. It boasts a highly educated and hardworking workforce, as well as a huge and affluent population, making it one of the world’s largest consumer marketplaces. From 1968 to 2010, Japan’s economy was the world’s second largest (after the United States), until China overtook it. Its GDP was expected to be USD 4.7 trillion in 2016, and its population of 126.9 million has a high quality of life, with a per capita GDP of slightly under USD 40,000 in 2015.
Japan was one of the first Asian countries to ascend the value chain from inexpensive textiles to advanced manufacturing and services, which now account for the bulk of Japan’s GDP and employment, thanks to its extraordinary economic recovery from the ashes of World War II. Agriculture and other primary industries account for under 1% of GDP.
Japan had one of the world’s strongest economic growth rates from the 1960s to the 1980s. This expansion was fueled by:
- Access to cutting-edge technologies and major research and development funding
- A vast domestic market of discriminating consumers has given Japanese companies a competitive advantage in terms of scale.
Manufacturing has been the most notable and well-known aspect of Japan’s economic development. Japan is now a global leader in the production of electrical and electronic goods, automobiles, ships, machine tools, optical and precision equipment, machinery, and chemicals. However, in recent years, Japan has given some manufacturing economic advantage to China, the Republic of Korea, and other manufacturing economies. To some extent, Japanese companies have offset this tendency by shifting manufacturing production to low-cost countries. Japan’s services industry, which includes financial services, now accounts for over 75% of the country’s GDP. The Tokyo Stock Exchange is one of the most important financial centers in the world.
With exports accounting for roughly 16% of GDP, international trade plays a key role in the Japanese economy. Vehicles, machinery, and manufactured items are among the most important exports. The United States (20.2%), China (17.5%), and the Republic of Korea (17.5%) were Japan’s top export destinations in 2015-16. (7 per cent). Export growth is sluggish, despite a cheaper yen as a result of stimulus measures.
Japan’s natural resources are limited, and its agriculture sector is strictly regulated. Mineral fuels, machinery, and food are among Japan’s most important imports. China (25.6%), the United States (10.9%), and Australia (10.9%) were the top three suppliers of these items in 2015. (5.6 per cent). Recent trade and foreign investment developments in Japan have shown a significantly stronger involvement with China, which in 2008 surpassed the United States as Japan’s largest trading partner.
Recent economic changes and trade liberalization, aiming at making the economy more open and flexible, will be critical in assisting Japan in dealing with its problems. Prime Minister Abe has pursued a reformist program, called ‘Abenomics,’ since his election victory in December 2012, adopting fiscal and monetary expansion as well as parts of structural reform that could liberalize the Japanese economy.
Japan’s population is rapidly aging, reducing the size of the workforce and tax revenues while increasing demands on health and social spending. Reforming the labor market to increase participation is one of the strategies being attempted to combat this trend. Prime Minister Shinzo Abe’s ‘Three Arrows’ economic revitalisation strategy of monetary easing, ‘flexible’ fiscal policy, and structural reform propelled Japan’s growth to new heights in 2013.
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How much of US debt is foreign owned?
The total national debt due by the federal government of the United States to Treasury security holders is known as the US national debt. The national debt is the face value of all outstanding Treasury securities issued by the Treasury and other federal government agencies at any one moment. The terms “national deficit” and “national surplus” normally relate to the federal government’s annual budget balance, not the total amount of debt owed. In a deficit year, the national debt rises because the government must borrow money to cover the gap, whereas in a surplus year, the debt falls because more money is received than spent, allowing the government to reduce the debt by purchasing Treasury securities. Government debt rises as a result of government spending and falls as a result of tax or other revenue, both of which fluctuate throughout the fiscal year. The gross national debt is made up of two parts:
- “Public debt” refers to Treasury securities held by people, corporations, the Federal Reserve, and foreign, state, and local governments, as well as those held by the federal government.
- Non-marketable Treasury securities held in accounts of federal government programs, such as the Social Security Trust Fund, are referred to as “debt held by government accounts” or “intragovernmental debt.” Debt held by government accounts is the result of various government programs’ cumulative surpluses, including interest earnings, being invested in Treasury securities.
Historically, the federal government’s debt as a percentage of GDP has risen during wars and recessions, then fallen afterward. The debt-to-GDP ratio may fall as a consequence of a government surplus or as a result of GDP growth and inflation. For example, public debt as a percentage of GDP peaked just after WWII (113 percent of GDP in 1945), then declined steadily over the next 35 years. Aging demographics and rising healthcare expenditures have raised concerns about the federal government’s economic policies’ long-term viability in recent decades. The United States debt ceiling limits the total amount of money Treasury can borrow.
The public held $20.83 trillion in federal debt, while intragovernmental holdings were $5.88 trillion, for a total national debt of $26.70 trillion as of August 31, 2020. Debt held by the public was around 99.3% of GDP at the end of 2020, with foreigners owning approximately 37% of this public debt. The United States has the world’s greatest external debt, with a debt-to-GDP ratio of 43rd out of 207 countries and territories in 2017. Foreign countries held $7.04 trillion worth of US Treasury securities in June 2020, up from $6.63 trillion in June 2019. According to a 2018 assessment by the Congressional Budget Office (CBO), public debt would reach approximately 100% of GDP by 2028, possibly more if current policies are prolonged past their expiration dates.
The federal government spent trillions on virus help and economic relief during the COVID-19 pandemic. According to the CBO, the budget deficit in fiscal year 2020 will be $3.3 trillion, or 16 percent of GDP, which is more than quadruple the deficit in fiscal year 2019 and the highest as a percentage of GDP since 1945.
