POINT OF VIEW. Japan: the debt? What debt?

The Covid-19 crisis is exploding public debts. While support and stimulus packages inflate spending, the shrinking economy reduces tax revenues. France’s debt is now close to 118% of GDP. But that of Japan, according to sources, is estimated (!) Between 238% and 250% of GDP. Without it seeming to worry him. Why ?

Borrow from yourself in your own currency

Japan shares a rare privilege with the United States: it lends itself in its own currency. It therefore owes nothing to the IMF or to any “regional bank”, unlike France. Over 60% of its debt is held by the Bank of Japan, a third by Japanese institutional investors (pension funds, postal savings funds, banks) who have nothing to deny the government, and barely 6% by strangers. Today it lends itself to 0.08% at ten years and 1% at thirty years. It is a little more expensive than France, whose Treasury bills now have negative rates, but still very cheap.

The virtues of perpetual debt

Under these conditions, as long as the State can pay the interest each year, repay the securities that have matured and borrow what it needs, its debt is sustainable. It is the principle of perpetual debt, which has been the power of England for centuries as our monarchy was exhausted paying its own.

In addition, the Japanese state still has fiscal room: it takes barely 36% of the GDP, against 46% here. In addition, the Liberal Democratic Party governs without the slightest sharing. If the tax burden must be increased, there is no risk of seeing the yellow vests rise …

“All debt must be repaid! ” Really ?

A credible scenario is that the Bank of Japan would one day come to hold almost all of the debt: a stroke of the pen would then suffice to cancel it without anyone losing. Both individuals and the Japanese business community would be immeasurably relieved, in particular because it would further ease the tax burden. Foreign experts are said to be screaming that the sacred principle “All debt must be paid off” has been violated. But a principle is only valid as long as the one who violates it can be punished. But no one can punish Japan.

In addition, he is not alone in his case. The United States, China and Russia do not care more than Japan about their debt (respectively 128%, 65% and 21% of their GDP), because they lend themselves as much as needed, without concern of the IMF or the World Bank. We can bet that they would follow the example. If Europe is the only one to apply all the brakes and sacrifice the investment essential to progress to repay its debt, it will be the turkey of the farce.

The ideal would obviously be a global erasure by agreement between the powers.

We can always dream…

What about inflation?

Getting rid of the worry of repaying the public debt to fight the crisis by distributing money all the way may seem like a miracle recipe, but doing so when production stagnates will inevitably generate inflation, including the current super-performance of the stock markets. worlds may give a foretaste. The damage can be catastrophic from a socio-economic as well as a political perspective: Hitler was brought to power by the world crisis of 1929.

Are our democracies immune to the virus of soft authoritarianism, to which the almost one-party gerontocracy, for its part, has long accustomed Japan very well?

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