Analysis: Japan's debt time bomb to complicate BOJ exit path (2024)
TOKYO, Feb 10 (Reuters) - Japan's ticking debt time bomb will likely complicate the next central bank governor's task of steering a smooth exit from ultra-loose monetary settings, with rising long-term interest rates already forcing policymakers to amend budget projections.
Prime Minister Fumio Kishida's administration has nominated Kazuo Ueda, a former member of the central bank's policy board, as its pick to succeed Bank of Japan (BOJ) Governor Haruhiko Kuroda, people familiar with the matter told Reuters on Friday.
Kuroda retires on April 8 and leaves behind a policy that helped keep the cost of funding the country's huge debt pile extremely low.
Ueda's nomination, if confirmed, would come as the BOJ faces growing pressure to phase out yield curve control (YCC) with inflation running hot and its heavy-handed intervention criticised for distorting bond market pricing.
A flurry of big spending packages and ballooning social welfare costs for a rapidly ageing population have left Japan with a debt pile 263% the size of its economy - double the ratio for the United States and the highest among major economies.
As a result, Japan spent 22% of its annual budget on debt redemption and interest payment last year, more than the 15% spent on public works, education and defense combined.
The ratio could hit 25% in fiscal 2025 under new estimates that reflect recent rises in long-term interest rates, according to the government's projections issued in January.
And yet, the government's spending wish list keeps getting longer with Kishida announcing plans to boost Japan's defense spending and payouts to families with children.
"The BOJ must gradually normalise monetary policy. But that won't be possible unless wages rise and Japan's fiscal policy is made more sustainable," said Yuri Okina, head of a private think tank.
Markets see Ueda as somewhat hawkish on monetary policy, drawing on his remarks in recent years offering a critical view of Kuroda's radical stimulus programme.
In an opinion piece in the Nikkei last July, Ueda said the BOJ must consider an exit strategy from ultra-loose monetary policy and review its extraordinary stimulus programme at some point.
Japan's precarious debt situation has drawn warnings from the International Monetary Fund, which said last month that "interest rates could increase suddenly, and sovereign stress could emerge" from its rising debt-to-GDP ratio.
While the government's "very comfortable" funding situation will be sustained as any BOJ rate hike will be gradual, Japan was facing a "very risky time" managing debt, said Christian de Guzman, senior vice president at Moody's Investors Service.
"We are looking to see how (the BOJ) manages the transition. It is an unprecedented situation."
S&P Global Ratings warns a future rate hike could affect Japan's sovereign debt rating if firms, many of whom are accustomed to prolonged ultra-low rates, struggle to absorb rising funding costs.
"Even a 1-2 percentage point (rise in interest rates) is very big in Japan's context. I'm not sure how well the service sector could absorb this increase," Kim Eng Tan, senior director of S&P's sovereign ratings team in Asia-Pacific, told Reuters.
PAYING THE PRICE
Even before the BOJ takes any action towards an exit, rising bond yields are starting to affect the government's finances.
Last year, market bets of a near-term rate hike drove up the benchmark 10-year bond yield by 40 basis points to hit a high of 0.48% by year-end. Last month, the yield briefly hit 0.545%, the highest level since June 2015 and above the BOJ's 0.5% cap.
The increase in long-term rates led the government to revise up its 10-year bond yield forecast to 1.5% for fiscal 2025, up from 1.3% in projections made a year ago, and project the yield to rise to 1.6% in 2026.
Based on the new estimates, a 1% across-the-curve rise in yields will increase debt servicing costs by 3.6 trillion yen in fiscal 2026. That is no small rise for a country with an annual defence spending of 5.4 trillion yen.
The forecasts, used in drafting the budget, are set higher than market levels to ensure government spending plans have buffers against an abrupt spike in borrowing costs. Before YCC, the government's yield estimates hovered around 1.6 to 2.2%.
With inflation - not deflation - becoming a bigger risk for Japan's economy, Kishida's administration is more open than his predecessors to the idea of a gradual BOJ policy normalisation, say government officials with knowledge of the matter.
But it will be sensitive to any BOJ action that upends the bond market and hampers government spending plans, they say.
That means any Japan's debt situation will be among key considerations for the BOJ as it eyes an eventual lift-off.
"While it's better for market forces to drive bond moves more, removing the BOJ's yield cap could destabilise markets and make investors cautious of buying bonds," one official said.
"That's a scenario we'd like the BOJ to avoid."
Former finance ministry official Kazumasa Oguro, who is now an academic at Japan's Hosei University, warns the government will pay the price for delaying fiscal reforms during time bought by the BOJ's yield control policy.
"The BOJ is gradually being cornered into normalising policy," he said. "In the end, market forces will prevail."
Reporting by Leika Kihara; Editing by Sam Holmes and Hugh Lawson
The amount of Japan's national debt in 2021 amounted to about 10.46 trillion U.S. dollar. In a ranking of debt to GDP per country, Japan is thus currently ranked first. With one of the largest gross domestic products (GDP), Japan is among the largest economies in the world.
A flurry of big spending packages and ballooning social welfare costs for a rapidly ageing population have left Japan with a debt pile 263% the size of its economy - double the ratio for the United States and the highest among major economies.
Around 70% of Japanese government bonds are purchased by the Bank of Japan, and much of the remainder is purchased by Japanese banks and trust funds, which largely insulates the prices and yields of such bonds from the effects of the global bond market and reduces their sensitivity to credit rating changes.
According to data published by London-based investment fintech Invezz, Japan, Greece, Italy, Portugal, and the US are the top five nations with the highest level of government debt.
Measuring by debt to GDP ratio, Japan's debt is the highest in the world and the United States—which has the world's largest economy and highest GDP—drops to 14th place.
According to usafacts.org, as of January 2023, Japan owned $1.1 trillion in US Treasuries, making it the largest foreign holder of the national debt. The second-largest holder is China, which owned $859 billion of US debt.
Japan has the highest debt to GDP ratio, standing at 262%. This is followed by Venezuela at 241% and Greece at 193%. These countries have been grappling with significant debt burdens for some time, with various economic and political factors contributing to their high ratios.
Investors in Japan and China hold significant shares of U.S. public debt. Together, as of September 2022, they accounted for nearly $2 trillion, or about 8 percent of DHBP. While China's holdings of U.S. debt have declined over the past decade, Japan has slightly increased their purchases of U.S. Treasury securities.
As of December 2021, the Bank of Japan held 48.1 percent of outstanding Japanese Government Bonds (JGBs). While Japan's central bank held the largest share of JGBs, households accounted for a share of 1.2 percent.
Japan Government debt accounted for 226.4 % of the country's Nominal GDP in Mar 2023, compared with the ratio of 225.9 % in the previous quarter. Japan government debt to GDP ratio data is updated quarterly, available from Dec 1994 to Mar 2023.
Many people believe that much of the U.S. national debt is owed to foreign countries like China and Japan, but the truth is that most of it is owed to Social Security and pension funds right here in the U.S. This means that U.S. citizens own most of the national debt.
Eliminating the U.S. government's debt is a Herculean task that could take decades. In addition to obvious steps, such as hiking taxes and slashing spending, the government could take a number of other approaches, some of them unorthodox and even controversial. Below are some of these options.
So if the U.S. cannot pay its creditors, interest rates on U.S. debt would go up, creating a cascade of higher interest rates. So mortgage rates, credit card rates, car loan rates. All would become more expensive. Finally, there is a real concern about the economy — that a default could spark a recession.
America's debt has risen massively since the beginning of the 21st century, as "politicians from both parties have made a habit of borrowing money to finance wars, tax cuts, expanded federal spending, care for baby boomers, and emergency measures to help the nation endure two debilitating recessions," writes Jim ...
With $1.1 trillion in Treasury holdings, Japan is the largest foreign holder of U.S. debt. Japan surpassed China as the top holder in 2019 as China shed over $250 billion, or 30% of its holdings in four years. This bond offloading by China is the one way the country can manage the yuan's exchange rate.
China and Japan are the largest foreign investors in American government debt. Together they own $2 trillion — more than a quarter — of the $7.6 trillion in US Treasury securities held by foreign countries.
As of January 2023, the five countries owning the most US debt are Japan ($1.1 trillion), China ($859 billion), the United Kingdom ($668 billion), Belgium ($331 billion), and Luxembourg ($318 billion).
This resulted in a huge government surplus of funds. (In 1835, the $17.9 million budget surplus was greater than the total government expenses for that year.) By January of 1835, for the first and only time, all of the government's interest-bearing debt was paid off.
Of the total 7.4 trillion held by foreign countries, Japan and Mainland China held the greatest portions, with China holding 859.4 billion U.S. dollars in U.S. securities.
In this line, data acquired by Finbold indicates that as of April 12, China's national debt amounted to $14.34 trillion, ranking second globally. This value reflects a year-on-year (YoY) increase of $3.81 trillion, or 36.18%, compared to the $10.53 trillion recorded in 2022.
Who owns China debt? Most of China's local government debt, one of the most regular issuers of domestic debt, is held by state-owned or state-controlled financial institutions. For decades, China's local governments have relied on off balance sheet borrowing through local government financing vehicles (LGFVs).
How much does Russia owe? About $40 billion US in foreign bonds, about half of that to foreigners. Before the start of the war, Russia had around $640 billion US in foreign currency and gold reserves, much of which was held overseas and is now frozen.
At the end of 2021, of the 98 countries for whom data was available, Pakistan ($27.4 billion of external debt to China), Angola (22.0 billion), Ethiopia (7.4 billion), Kenya (7.4 billion) and Sri Lanka (7.2 billion) held the biggest debts to China.
Federal government net debt edged down in 2021 (-$4.1 billion) to $910.5 billion, still above pre-pandemic levels. Federal government net debt-to-GDP ratio decreased to 36.3% in 2021, following the upswing from 29.8% in 2019 to 41.4% in 2020.
The national debt of a country represents the sum of past annual deficits and the total that it owes creditors. Economists use the ratio of debt to a nation's gross domestic product as an indicator of a country's financial sustainability.
To answer the question in the title of this column, Japan's massive government debt has not wreaked havoc in the past because of robust domestic saving, especially household saving (and, in more recent years, corporate saving) and a temporary inflow of foreign capital caused by the Global Financial Crisis, but it may ...
It's simple. For years, what the U.S. government spent on those things was far greater than the amount of money it had brought in to pay for them. That stacked up to that $31.4 trillion in debt we have now.
TOKYO -- The Bank of Japan's books showed it holding more than 100% of four benchmark 10-year government bond issues as of last Friday, according to a report released by the central bank on Tuesday.
United States Government debt accounted for 123.4 % of the country's Nominal GDP in Dec 2022, compared with the ratio of 123.6 % in the previous quarter. US government debt to GDP ratio data is updated quarterly, available from Mar 1969 to Dec 2022.
TOKYO, Jan 26 (Reuters) - Japan's government debt will top 1,100 trillion yen ($8.47 trillion) for the first time at the fiscal year end in March 2027 as the country remains heavily dependent on borrowing, a draft estimate seen by Reuters on Thursday showed.
Key Takeaways. China invests heavily in U.S. Treasury bonds to keep its export prices lower. China focuses on export-led growth to help generate jobs. To keep its export prices low, China must keep its currency—the renminbi (RMB)—low compared to the U.S. dollar.
To pay back one million dollars, at a rate of one dollar per second, would take you 11.5 days. To pay back one billion dollars, at a rate of one dollar per second, would take you 32 years. To pay back one trillion dollars, at a rate of one dollar per second, would take you 31,688 years.
Mountain states, such as Idaho, Montana, Utah and Wyoming made the top-10 list, as did upper Midwest states like Nebraska, North Dakota and South Dakota. Alaska takes the No. 1 spot, with a tiny debt ratio of only 14.2%.
Potential repercussions of reaching the ceiling include a downgrade by credit rating agencies, increased borrowing costs for businesses and homeowners alike, and a dropoff in consumer confidence that could shock the United States' financial market and tip its economy—and the world's—into immediate recession.
The Fed tries to influence the supply of money in the economy to promote noninflationary growth. Unless there is an increase in economic activity commensurate with the amount of money that is created, printing money to pay off the debt would make inflation worse.
There's just a 2% possibility the U.S. government will default on its loans, according to analysts at Deutsche Bank, despite days of stalled-out negotiations.
A sovereign default happens when a country's government fails to pay its debt obligations. A sovereign default can have serious economic consequences for the borrowing nation, making it harder and more expensive to borrow money in the future and pay its ongoing obligations.
If the U.S. government defaults on its debt - as it appears at risk of doing at the moment - it would very likely prove to be a bullish catalyst for gold prices for at least two reasons: Gold has traditionally been viewed as a safe haven, so whenever major macro disruptions occur, gold prices tend to shoot higher.
A default on U.S. debt could trigger a worldwide recession and upend stock markets in addition to wreaking havoc in Americans' financial lives. Anna Helhoski is a senior writer covering economic news and trends in consumer finance at NerdWallet.
Raising taxes can generate revenue that the government can use to pay down debt as well as invest in programs that support the economy. But it can cut into tax revenue and hurt the economy if the government raises taxes too high. Finding the correct balance is expressed by a concept known as the "Laffer Curve."
The debt limit caps the total amount of allowable outstanding U.S. federal debt. The U.S. hit that limit—$31.4 trillion—on January 19, 2023, but the Department of the Treasury has been undertaking a set of “extraordinary measures” so that the debt limit does not yet bind.
Japan's public debt is more than double its annual economic output, by far the heaviest burden in the industrialized world. Finance Minister Shunichi Suzuki reiterated the government's aim to achieve an annual budget surplus — excluding new bond sales and debt-servicing costs — in the fiscal year to March 2026.
Based on the number of inhabitants, this is a debt of 103,193 USD per person. For comparison, the average debt per person in the same year in the European Union was 35,341 USD.
A calculation based on the estimated Japanese population of 122 million (as of November 1, 2022) shows that per-capita debt for all citizens, from newborn babies to centenarians, was more than ¥10.4 million. Last year marked the first time per-capita debt exceeded ¥10 million and it has now increased further.
Japan currently does not owe the United States any money. However, Japan did remain in debt to the United States after World War II. This was primarily due to the costs that the United States incurred in rebuilding Japan and assisting its economy.
Government Debt to GDP in Japan averaged 146.28 percent of GDP from 1980 until 2022, reaching an all time high of 263.90 percent of GDP in 2022 and a record low of 50.60 percent of GDP in 1980.
In 2022, the gross federal debt in the United States amounted to around 92,528 U.S. dollars per capita. This is a moderate increase from the previous year, when the per capita national debt amounted to about 85,552 U.S. dollars.
Supply chain issues, rising labor costs, and political issues have highlighted problems with Japan's reliance on China as a base for its manufacturing investments. With a low birthrate and aging population, Japan's social security system is under strain and is suffering from labor shortages.
Flashpoints that greatly contributed to the debt over the past 50 years include the wars in Iraq and Afghanistan, the 2008 financial crisis and the 2020 COVID-19 pandemic -- the latter two prompting sweeping stimulus measures from Congress that cost trillions of dollars.
Japan's population has fallen for the 12th consecutive year, as deaths rise and the birth rate continues to sink, according to government data released Wednesday. The population stood at 124.49 million in 2022 – representing a decline of 556,000 from the previous year, figures show.
Because Japan exports so many goods to the U.S. and other nations, the country frequently develops an account surplus in dollars - the currency the U.S. and other countries give Japan in exchange for their products.
Therefore, China's national debt has surged almost three times that of the United States in the past 12 months. In the third spot, Japan has a national debt of $13.36 trillion, indicating a drop of $1.49 trillion YoY.
Introduction: My name is Pres. Carey Rath, I am a faithful, funny, vast, joyous, lively, brave, glamorous person who loves writing and wants to share my knowledge and understanding with you.
We notice you're using an ad blocker
Without advertising income, we can't keep making this site awesome for you.
