Japanese National Debt

Readers Question: I don’t understand how a high domestic savings rate makes a high public sector debt sustainable. Surely 195% GDP public debt is a massive burden on the Japanese government via interest payments? UK public debt is about 45% GDP whilst we have a relatively low savings rate, how are these facts related? How are domestic savings linked to public debt? (from: List of National debt by Country)

Japanese national debt is a real burden to the economy. It’s a huge figure which means the government will be limited by debt repayments for many years.

However, there are two factors which make it more bearable. (Other countries may simply be unable to borrow so much)

1. The first factor is that the Japanese private sector have a large appetite for buying government bonds. This is because domestic savings are high. Therefore, people have spare cash to buy bonds and lend the government money. In a country with a very low saving rate, there would be less people willing / able to buy government debt.
2. The second factor is that interest rates in Japan are very low. (Central bank rate is 0.3%) bond yields are also very low. Therefore, the interest payments on the debt are relatively low. If interest rates in Japan were say 5%, the cost of servicing the national debt would be much higher.