The public debt problem in Japan has of course been brewing for many years without boiling over into a full-blown crisis. However, adverse demographics could soon cause the government’s finances to spiral out of control. Japan’s low potential growth rate, the lack of political will behind fiscal austerity, and the fact that most debt is held by domestic financial institutions, all limit the options available to policy-makers. The upshot is that higher inflation is the only plausible answer to Japan’s fiscal problems, but even achieving the current target of 2% may not be enough.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to gain:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services