Readers Question: After the insightful post on ‘Italian Economic Decline’, I was particularly captured by the % debt to GDP line graph of the different developed countries. The one thing that really caught my eye was Japan’s huge % debt to GDP and yet their government bond yields are consistently declining. Aren’t the markets worried that Japan may default on their debt someday or is the fact that they have a lender of last resort (no fear of liquidity problems) unlike Italy and their 0% interest rates shielding them from augmenting yields?
It is true that Japanese public sector debt is over 239% of GDP, yet bond yields in Japan remain low. It seems the markets have no current concerns over Japanese repayment. Spain might feel aggrieved that they face rapidly rising bond yields – even though their public sector debt (70% of GDP in 2011) is considerably lower.
- Japan debt 229.1% of GDP on a gross basis, and 127.8% of GDP on a net basis
Why Can Japan Government Debt be So High at Low-Interest rates?
- High levels of savings in Japan. Japan’s saving ratio has fallen in recent years (partly due to an ageing population) but although it may sound a paradox, there are still high levels of domestic saving. Up to now, this large pool of savings has been used to buy Japanese government debt. (Japan Saving ratio)
