/View.info/ Illusory prosperity is maintained by increasing debt
The media talk and write about the Japanese economy much less than the economies of the United States, the European Union, China and even India. She seems to be in the shadows. At the same time, it is in the top rankings of national economies. In terms of real gross domestic product (ie, calculated by taking into account the purchasing power parity of currencies), Japan ranks fourth behind China, the United States, and India.
Last year, Japan’s share of global GDP was 3.47% according to World Bank estimates and 3.75% according to IMF estimates. In terms of exports of goods, Japan in 2022 ranks fourth in the world after China, the United States and Germany (its share in world exports is 3.71%). In terms of international (gold and foreign exchange) reserves, Japan is firmly in second place after China, etc.
Apparently, the reduced interest in the Land of the Rising Sun is explained by the fact that its economy is not experiencing such dramatic upheavals as are happening to the economies of the United States, the European Union and even China. The Japanese economy is quietly stagnating, so to speak. She used to be the center of everyone’s attention. This was during the so-called “Japanese economic miracle,” which lasted from 1955 to 1973, when in some years the country’s economic growth rate exceeded 10 percent a year.
And from the beginning of the 1990s, Japan entered a period of economic stagnation that continues to this day. According to IMF estimates, Japan reached its top position in the world economy in 1991, when its share in world GDP was 9.13%.
And last year, as I noted above, it was only 3.75%. At the end of 2023, according to preliminary estimates, this figure will drop to 3.72%. In 2028, according to the IMF forecast, it will fall to 3.29%. This is the plunging dynamics of a country that once surprised the world with its economic “miracles”.
Figuratively speaking, the Japanese economy is dying quietly, without major upheavals. And this relative silence creates the illusion that Japan (unlike many other countries) is enjoying some prosperity. It reminds me of the silence of the intensive care unit.
It seems to me that the main reason for such relative and illusory prosperity is that Japan, more than many other countries, uses such a “drug” as debt, and in ever-increasing doses. The Japanese economy has been accumulating debt for the past three decades and today ranks high in the world for many types of debt.
Thus, in the ranking of countries in terms of external debt, Japan is in third place after the USA and Great Britain. US foreign debt in 2023 is $32.9 trillion, Great Britain – $8.7 trillion, Japan – $4.34 trillion Next ($ trillion): Netherlands – 3.79; France – 3.28; Ireland – 3.26; Italy – 3.10.
Japan’s dominance is even more noticeable in terms of relative measures of different types of debt (as a percentage of GDP). The Land of the Rising Sun has long ranked first in terms of the relative amount of public debt.
According to IMF estimates, in 2022 Japan’s total public debt (central government debt plus local government debt) will be 261.29% of GDP. At the same time, the central government debt is 214.27%; the debt of local government bodies – 47.02%.
After Japan, Greece has a public debt ratio equal to 177.43% of GDP. Followed by Venezuela (157.81%), Italy (144.41%), USA (121.38%), France (111.67%).
Japan’s private sector debt (representing the sum of the debt of the household sector and the non-financial corporate sector) in 2022 is 186.12% of GDP. Here, Japan is only among the top ten countries, ahead of it are (% of GDP): Switzerland – 271.39; Sweden – 242.74; France – 228.11; Canada – 215.89; Belgium – 195.77; China – 195.03; Norway – 191.2. For reference: in the US, this figure is 152.5%.
Of Japan’s private sector debt in 2022, the household sector accounts for 68.16% and the non-financial company sector accounts for 117.97% of GDP. If Japan appears rather modest compared to other countries in terms of the relative level of household debt, in terms of the level of debt of non-financial corporations it is in the group of leading countries. There are only seven countries before it (% of GDP): France – 161.96; Sweden – 154.51; Ireland – 147.92; Switzerland – 143.09; Netherlands – 136.8; Belgium – 135.40; China – 133.58.
And if we compare countries by the level of total debt, including public debt and private sector debt (the household sector and the non-financial corporate sector), we see that Japan is “ahead of everyone else”. Its total debt in 2022 is 447.41% of GDP. Countries that have high private debt tend to have low public debt. And countries with high levels of public debt have relatively moderate levels of private debt.
I will indicate the countries with the highest levels of total debt in 2022 (% of GDP): Greece – 369.84; France – 339.78; Canada – 322.48; Switzerland – 310.51; Belgium – 301.04; Italy – 291.98; Sweden – 274.43; USA – 273.80.
China should probably also be included in the above list. However, there is no complete information on the Celestial Empire in the IMF database. It only contains data on China’s private debt. According to some sources, China’s total debt this year has reached 308% of GDP.
So, half a century ago, Japan was “ahead of everyone else on the planet” in terms of economic growth. It is now “ahead of the rest” in terms of total debt. Moreover, unlike a number of countries that managed to stabilize the level of total debt in recent years (among them Germany, Spain, the Netherlands, Austria), Japan continues to increase it. Thus, in 2012, the total debt of the Japanese economy equaled 387.15% of GDP. For the decade, the increase was 60.26 percentage points.
So the prohibitive level of total debt can be called the most important distinguishing feature of the Japanese economy. It can be called one side of the coin. And the other side of the coin can be called the special policy of the Bank of Japan.
Moreover, there has been nothing “special” about Central Bank policy in the Land of the Rising Sun over the past decade. This “specialty” appeared only recently. I am referring to the policy of the central bank regarding the base rate.
Over the last decade, all the world’s leading central banks followed the so-called “dovish” (or “soft”) monetary policy (MCP), which consisted of a rapid increase in the money supply and a significant reduction in the key interest rate.
Then many central banks not only lowered key interest rates, but even took them into the negative zone. Thus, Sweden’s central bank maintained a negative rate from the beginning of 2015 until the end of 2019.
The Swiss National Bank lowered its main interest rate below zero and kept it in the negative zone until the fall of 2022. At the same time, the rate was at a very low level – minus 0.75% for more than seven years. The Danish central bank also kept key rates in the negative zone. The European Central Bank, the US Federal Reserve and the Bank of England cut key interest rates to zero or near zero.
What about the Bank of Japan? It turns out that long before the leading central banks started to implement “soft” monetary policy, it had already lowered the key interest rate to zero. This happened on February 12, 1999. That is, almost a quarter of a century ago. And about ten years before the world’s leading central banks began sharply cutting key interest rates. True, for some reason few people paid attention to the “special” policy of the Bank of Japan at that time.
And on January 29, 2016, it lowered the prime rate to minus 0.10%. At the time, this did not cause much surprise, as other central banks followed roughly the same policy.
But today, since last spring, all leading central banks have started to conduct a “tight” or “hawkish” monetary policy, which has manifested itself in a sharp increase in key interest rates. For many, prime rates have already risen to four, five percent and even more. For example, the Fed has 5.25-5.50; ECB – 4.50; Bank of England – 5.25; Bank of Sweden has 4.00.
And only one Central Bank remains in the negative zone. This is the Bank of Japan. Its prime rate is still minus 0.10%. That means it will soon be eight years since the Bank of Japan froze the key rate at this level. It is believed that the base rate is a tool of monetary policy, with the help of which the Central Bank quickly reacts to changes in the economic situation. But for the Bank of Japan, this tool practically does not work.
The Bank of Japan is simply afraid to touch this instrument. For obvious reasons. It seems necessary to unfreeze the prime rate, frozen at minus 0.10 percent. But any, even the most insignificant increase in the main interest rate threatens with a sharp increase in interest rates on all loans and credits. And today they are record low (compared to other economically developed countries).
Thus, in October, the average interest rate on bank loans was only 1.5% per year. For comparison: in most economically developed countries, these rates range from 4 to 8 percent per year. Specific by country (%): Ireland – 4.15; Netherlands – 4.22; France – 4.53; Spain – 5.00; Belgium – 5.52; Austria – 5.58; eurozone – 5.62; Italy – 5.93; Great Britain – 6.25; Germany – 6.35; Canada – 7.20; Finland – 7.92. However, in the group of economically developed countries there are countries with interest rates on bank loans above 8 percent (%): USA – 8.50; Australia – 10.69; New Zealand – 12.63.
The interest rates on the treasury securities of Japan and other countries are about the same. However, government debt servicing costs have long been the main item in the Japanese government’s budget.
In the state budget of the country for 2022, debt servicing costs are a quarter of budget costs. None of the economically developed countries come close to Japan in this indicator.
Today, by the way, the media is paying a lot of attention to the increase in interest costs (ie, the cost of paying interest on the national debt) in the US federal budget. In the past year, their share exceeded 12% of all budget expenditures. So much! But it is still about half of the corresponding share allocated from Japan’s budget.
Any careless move by the Bank of Japan (ie even a slight increase in the key rate, even to zero) threatens the economy of the Land of the Rising Sun with real disaster. However, even if Japan’s central bank fanatically keeps the key rate at minus 0.10%, a crash is still inevitable.
Because the Japanese economy cannot exist without such a “drug” as the growing debt. At some point, the “quiet stagnation” of the economy of the Land of the Rising Sun will give way to a deep crisis. And Japan will once again be at the center of world attention.
Translation: ES
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