Japan walking 'tightrope' on public debt, says Amari

Without a willingness to endure some short-term pain, Japan's crushing public debts (which is still growing and compounding as we are speaking) will push Japan to a point with no return.

Practically, right now Japan is running on the borrowed time.

Ethan, I agree. But I'd say the point of no return was passed long ago. The debt is already barely being serviced even at the incredibly low interest rate now. When it rises, it'll be sayonara.

John, yyour assessment has a very good point. Japan’s public debts have already put serious pressures on Japan’s economy already.

The government cannot repay the debts. This means they will either default, order the "independent" Bank of Japan to cancel the Japanese government bonds it holds, or bring in the "new Yen".

Good to see Amari acknowledging the problem. It's impossible to know, but the presence of fears about Japan's public debt amongst the leadership is possibly the saving grace that holds it all together (for now).

“Frankly, we’re walking a tightrope,” he said. “We have to tell the public that this is a pretty narrow path.”

Wrong analogy though. Despite an already massive debt load, Japan is still adding an extra 35-40 trillion yen to the pile each year. So it's hardly like they are tippy-toeing down a tightrope, it's more like hurtling towards the edge of a cliff at full speed, in the dark of night.

The consumption tax hikes were only expected to bring in another 5 or so trillion in revenue. Either tax needs to go way higher, or public expenditure needs to be seriously cut, along with a sale of Japan's publicly owned assets.

They can just print money and stoke inflation and repay the debt at the cost of massive yen devaluation.

"When it rises, it'll be sayonara."

Really? What exactly will play out? The Japanese will call in their debt... to themselves?

It's been a really long "tightrope." About 20 years. And all the predictions during that time about debt default, high interest rates, hyper inflation, etc. have been....wrong.

Yes Jefflee exactly, I remember sitting in a bar in NZ back in the early 90s listening to the doom n gloomers talking about how japan was about to plunge off the fiscal cliff back then and to pull out while I had a chance,

Some of the new comers seem to think this is all brand new started by Abe and do not realise its been going on for decades with out changing. It will continue for a while longer.

The US cannot repay its debt either, hardly any of these nations can or will, it is not something to worry about in the near term either.

There are bigger issues going on in the world than Japans rising debt.

Will this end up like Iceland? Well come to think of it, their standard of living is pretty darn good .

It'll happen. , Storm, you're right. It hasn't collapsed nor gone up in flames. At least not yet. But just because the camel's back hasn't broken yet doesn't mean it won't happen. As long as the elements remain, or in this case continue to mount, that burden will continue to cause more strain, and then one day it'll snap, like the stress on tectonic plates. One day the stress exceeds whatever point and a huge quake is released. Itll

"Will this end up like Iceland?"

No. Iceland suffered a banking crisis. Japan's banks are healthy.

I find it amusing that the skeptics are certain it's going to happen, but don't have clue how or when. No wonder they've always been wrong all these years.

JeffLee: Don't be too confident in Japanese banks: they hold a lot of Japanese government bonds. When the government defaults the banks will lose out. Depositors can expect to be "bailed in" (like in Cyprus) to help them out.

If you study the assets held by Japanese politicians you won't find much held as bank deposits. They won't be the losers when it all goes pear shaped.

If you study the assets held by Japanese politicians you won't find much held as bank deposits. They won't be the losers when it all goes pear shaped.

Need a new 'under the bed tax' or 'I forgot about that multi-million yen loan' tax

@Scrote

"When the government defaults...."

The govt can't default, (unless ignorant "sequester" politicians rig the system to make it happen). Simply put, Japan can't run out of a currency that it has the sole authority to issue and which is used to service its debt.

"If you study the assets held by Japanese politicians...."

Why would I? Most Japanese politicians are idiots when it comes to economic policy. They bought Japanese real estate leading right up to Japan's real-estate asset bubble.

StormR,

Japan may have had problems in the early 90s, but I doubt it was talk about a "fiscal cliff" back then. This current debt problem has just grown and grown over the past 20 years.

it is not something to worry about in the near term either.

Worrying alone is pretty pointless, but taking actions to mitigate risks can alleviate worries. It's like putting on a seat belt.

The people who haven't even started worrying yet will probably be frozen with worry when the time comes, and unable to take appropriate measures. So better to worry too early and be prepared, rather than worry too late and suffer.

There are bigger issues going on in the world than Japans rising debt.

Sure there are risks everywhere, but personally I live in Japan.

JeffLee,

the skeptics are certain it's going to happen, but don't have clue how or when

I can't forsee how or when I might get caught in a traffic accident, but I wear a seat belt anyways. It's lunacy, isn't it.

Yes, it's a large public debt. But, when it's paid, it's not going offshore. Why? Because most of this debt is owed to Japanese citizens. It's not as if wealth is leaving Japan's shores. It's just moving from one pocket to another. It just redistributes the wealth, unfortunately making the wealthy wealthier.

The trick is for these Japanese citizens to be taxed at a higher rate than citizens who earn less. In short, Japan's public debt can be fixed by a progressive tax rate. So, let's not belabor the point. Japan is freaking rich, and it doesn't have a real debt problem.

Actually, if people would just calm down and think for a second, they would realize that this whole debt-scare isn't justified by the data. Think about it - Japan has had a large and growing debt for more than 20 years now and neither hyperinflation nor skyrocketing interest rates have happened.

This is the general trend for developed economies with a government issued currency:

Weak growth -> Growing public debt and lower interest rates. Strong growth -> Shrinking or stable public debt and higher interest rates.

It seems people haven't realized that it's the Bank of Japan that sets the relevant interest rates.

Also - People should ask themselves where they think the money goes. It doesn't evaporate. If the government is in deficit, who has the corresponding surplus? Because it's them and the business sector of Japan.