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Why is Government Debt in
Japan so Great?
Group 1
Wisnu Widiyantoro, Chris Wang
The ministry also projected the debt would reach ¥1.167 quadrillion by the end of fiscal 2015 next
March, reflecting the need to finance ballooning social security costs with state debt as the population
rapidly grays.
The latest figure tops the previous record of ¥1.039 quadrillion set in June last year and was more
than double Japan’s nominal gross domestic product in 2014, which was ¥488 trillion. Japan’s
fiscal health is the worst among the major developed economies.
Source: http://www.japantimes.co.jp/news/2015/05/08/business/japanese-governments-debt-swells-to%C2%A51-053-quadrillion/#.VcLCULali1F
5/23/2017
What is "Government Debt"?
• Government debt (also known as public debt,
national debt and sovereign debt) is the debt
owed by a central government.
• Government debt is one method of financing
government operations, besides imposing tax
and issuing currency
5/23/2017
Where's the government debt coming from?
• Governments of developed and developing
countries usually borrow by issuing securities,
government bonds and bills.
• Less creditworthy countries sometimes
borrow directly from a supranational
organization (e.g. the World Bank) or
international financial institutions (IMF).
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Public debt as a percentage of GDP
(Source: CIA)
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5/23/2017
Debt to GDP ratio is the highest!!
230% now
Deficit to GDP ration rather high
The composition of Japan’s debt
Social spending!!
Over 30%
Age V.S. Debt
positive correlation??
Population of Japan by age(2014)
1950
Why is Government Debt in Japan so Great?
• Rapid population ageing is putting continued
pressure on social spending
• Rising social spending and inadequate
revenues
• National debt service(interest payment),
Public works(government spending) and local
government transfer also play a role,
however
How to lower the debt
• The amount of debt makes no sense
• Debt/GDP does matter
– Either Lower debt or boost GDP
What is Japan aiming for??
• cut the deficit to 1% of GDP, excluding
interest payments, by the year starting in April,
2018
• A surplus by fiscal year 2020
What is Japan doing now
e.g. The Consumption tax
• Social spending is necessary and hard to cut
Bond
Social
spending
Consumption Tax
Consumption tax
• Phase 1
– Consumption tax on April 1 ,2014,up to 8% from
5% in order to get the government’s debt under
control
• Phase 2
– From 8% to 10% in Oct. 2015
Concern
• Consumption tax ↑
– Debt ↓
– Consumption, Investment ↓
GDP ↓
DEBT/GDP ??????
We need more time to get the answer!!
Thank you for listening~