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IMF: Japan’s national debt to hit 250% of GDP in 2015

May 14, 2010
By Ken Worsley


A report released today by the International Monetary Fund asserts that Japan’s government debt will reach 250% of GDP in 2015. The IMF suggests that Japan increase its consumption tax by 5% as a step towards reducing its public debt.

Of course, consumption tax hikes tend to spell political disaster in Japan, as Prime Minister Noboru Takeshita learned after introducing the consumption tax in 1989 and PM Ryutaro Hashimoto discovered after raising the tax to 5% in 1997. While both the former and current ruling parties have acknowledged that consumption taxes need to be increased, neither party has shown a willingness to say so in their election manifestos.

Until now. Today it was reported that a DPJ joint election panel agreed to include language promising to increase consumption taxes as part of the DPJ’s Upper House campaign. However, it was also agreed that the tax should not be raised until after the next Lower House election, which would be as far away as 2013. And there was no discussion of just how much the tax should be increased.

If that seems vague, the leading opposition party’s stance is not much better. The LDP has called for an increase in consumption taxes in its election manifesto, but does not say when or by how much.

Filed Under Fiscal Policy, Japan, Politics 

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Comments

19 Responses to “IMF: Japan’s national debt to hit 250% of GDP in 2015”

  1. Geoff on May 14th, 2010 11:50 pm

    Japan won’t get a bailout because its debt is held by domestic investors rather than international banking corporations.

  2. Ken Worsley on May 15th, 2010 12:35 am

    Geoff, I couldn’t agree with you more. Japan should find a way to sell more debt to the outside; it boosts the chances for the IMF intervention that will eventually be needed. While the IMF may see some benefit to bailing out Japan, it won’t have the pressure from international banks unless Japan puts the pressure there. But, the fact is that there is little incentive to buy Japanese debt.

  3. mornig headlines from SeeTell – 2010-5-15 (Weekend) | seetell on May 15th, 2010 11:56 am

    […] debt is going to soar to new heights – (Japan Economy News) […]

  4. Chris on May 16th, 2010 8:32 am

    Just found this website - excellent content!

    RE deficit reduction, do you see anyone in Japan calling for spending reductions? If not, is there some non-political reason for such a reluctance?

  5. Ken Worsley on May 17th, 2010 12:20 am

    Chris, There are some members of the DPJ calling for the party to scale back or remove its plan to provide families with financial aid for children. Goshi Hosono, a member of the DPJ’s Manifesto Planning Committee, has spoken of reducing spending and capping bond issuance. But there’s little hope of increased tax revenue, so spending cuts are simply going to have to happen.

    I’m not sure that there are non-political reasons for anything.

  6. menget.com(Men's Fashion-Health-Women) on May 19th, 2010 1:21 am

    The IMF suggests that Japan increase its consumption tax by 5% as a step towards reducing its public debt.

  7. Astroboy on May 19th, 2010 6:25 pm

    OK. Japan’s national debt is soaring to 2.5 times of its GDP.
    Then, please let me know why JGB 10-years yield is rockbottom - 1.2 - 1.3%, and why JPY is soaring.

    Ken, I suggest you to worry about your own economy, not Japan.

  8. Ken Worsley on May 19th, 2010 10:17 pm

    My own economy?

  9. Astroboy on May 19th, 2010 11:06 pm

    Ken. I repeat … why the government bond of debt-laden country (aka Japan) is the most popular among investors and why the currency is soaring against all others. Conspiracy ?

  10. Ken Worsley on May 20th, 2010 5:22 am

    Astroboy, I honestly don’t think either of your claims are true. Japan is not the most popular bond issuer by values of bond issuance and the yen is not soaring; other currencies are falling. Bear in mind that a huge proportion of Japanese government debt is purchased by other domestic ministries, government organs and domestic investors, who make less than 0.1% in interest on savings accounts and are loath to invest in equity markets. This is hardly a conspiracy, it is the mechanism of the markets. That said, if you have technical indicators showing otherwise, please feel free to post them or email them to us and we will create a post from the data.

  11. Astroboy on May 20th, 2010 10:00 am

    Ken, “Other currencies are falling” is equivalent of “soaring yen”. “Lowest yield” means “most poplar” or “best among others” in temrs of bond market.

  12. Astroboy on May 20th, 2010 2:18 pm

    > who make less than 0.1% in interest on savings accounts ….

    If US, UK, and other governments offer us high-yield sovereign bonds in JPY, we are willing to purchase. History clearly indicates IF we purchase foreign asset, we will suffer from soaring yen. 0.1% yield is much better than negative value.

    Financil elites of the West tell “We offer better yield. Why don’t you purchase?”, but they never undertake foreign exchange risks, but push the risk to us.

  13. Lars on May 20th, 2010 3:26 pm

    Who is this clown?

  14. Ken Worsley on May 20th, 2010 5:10 pm

    @Astroboy:

    “Lowest yield” means “most poplar” or “best among others” in temrs of bond market.”

    No it doesn’t. No further comments from you will be approved. This website is for adults only.

    @Lars:

    Just another anonymous coward.

  15. Lars on May 22nd, 2010 12:32 am

    This clown obviously knows nothing about LIBOR rates.

  16. Ken Worsley on May 23rd, 2010 11:31 pm

    Lars: Astroboy is talking about sovereign debt rates, not interbank market rates.

  17. IMF: Japan’s national debt to hit 250% of GDP in 2015 | theworldnet.info on May 28th, 2010 9:51 am

    […] A report released today by the International Monetary Fund asserts that Japan’s government debt will reach 250% of GDP in 2015. The IMF suggests that Japan increase its consumption tax by 5% as a step towards reducing its public debt. (more…) […]

  18. Ueno Murakami on June 18th, 2010 11:43 pm

    How long can Japan sell its bonds to domestic entities? Eventually they will have to go international, right?

    On a possibly related note, what is your take on this new economic strategy plan laid out by Prime Minister Kan in his recent policy speech in front of the Diet?

    Peace,
    Ueno Murakami

  19. Stefan on August 9th, 2010 2:12 am

    Thank you for this excellent post, Ken! Could you please explain if there is a link between the low central bank rates in Japan and government bond yields?
    – Stefan

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