Why is Government Debt in Japan so Great?

Content  Background information about Japan  Japan´s main problems  Conclusion

Background information about Japan  In the post war period, Japan had a strong economic growth for decades.  It was export driven economy.  An under-valued Yen provided Japanese exporters with a competitive advantage.

Yen increased in value by 51% against the dollar in , that adversely affected Japanese exporters, and as a result Japan lost competitiveness. Japanese Yen against US dollars

Japanese economy has stagnated  Since the collapse of the Japanese debt bubble in 1989/ 1990, Japanese growth has been sluggish, averaging around 0.8% per annum  Nominal gross domestic product (GDP) has been largely stagnant since 1992

Japanese real GDP growth Source: /

Japan´s main problems  Social security  Japan’s population

Social security

Japan’s population  Japan’s population is forecast to decline.  The proportion of Japan’s population above 65 years will rise  The work force is expected to fall.

Source:

Large budget deficits  Government spending to stimulate economic activity has outstripped tax revenues,  resulting in a sharp increase in Japanese government gross debt to over 200% of GDP.  Since 1990 bubble, public finances have deteriorated significantly.

Japan Government Debt to GDP

Easing monetary policies  Use easing monetary policies tries to motivate economic activity  Short interest rates are around zero which has been in place for over a decade.

Government spending to stimulate economic activity has outstripped tax revenues,

Conclusion  Japanese economy is still one of the most important ones in the world  Despite different monetary efforts Japan has fail to recover and to generate a sustain economic growth  The effectiveness of conomic stimulus programs like QQE remains to be proven