Decline in public debt to GDP ratio has further to run

Japan’s ratio of gross government debt to GDP fell has fallen 200% for the first time since 2017 as the return of inflation has resulted in a strong improvement in the budget balance and boosted nominal GDP growth. While the deficit will probably widen this year and next, the government’s plan to phase out gasoline subsidies means that it may not widen as much as we had anticipated. The upshot is that the decline in the debt ratio has much further to run.