Stabilising public debt remains a daunting task

The Bank of Japan continues to express confidence in its ability to meet its 2% inflation target. But even that would probably not be enough to reduce the public debt burden. In a best-case scenario in which the fiscal deficit was eliminated and interest rates stayed low, consumer prices may still have to rise by 4% or 5% annually for at least a decade to bring the value of net debt down to 100% of GDP. The upshot is that public debt will remain high and, indeed, probably continue rising relative to output for the foreseeable future.