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Is Japan Facing a Public Debt Crisis? Debt Financing and the Development of the JGB Market
Author(s) -
Kang Myungkoo
Publication year - 2010
Publication title -
asian politics and policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.193
H-Index - 12
eISSN - 1943-0787
pISSN - 1943-0779
DOI - 10.1111/j.1943-0787.2010.01213.x
Subject(s) - debt , public finance , public sector , financial system , finance , internal debt , consolidation (business) , government (linguistics) , financial intermediary , senior debt , bond market , bond , economics , financial repression , business , private sector , external debt , competence (human resources) , economic policy , debt levels and flows , interest rate , economic growth , economy , macroeconomics , linguistics , philosophy , management
This article explores the idiosyncratic institutional features of public debt financing in Japan that have enabled the government to finance increasing public debt at low costs. It examines the three key aspects that contributed to the Japanese government bond (JGB) market development: (1) the surplus financial balance of the household sector; (2) the strong tradition of public financing; and (3) home bias, that is, little dependence on external financing. It argues that Japan's financial institutions' capacity to absorb JGBs is reaching the limit and that the Japanese government needs to take bolder measures to reverse the flow of financial intermediation, from the public to the private sector. It also suggests that restoring people's trust in the government's competence and leadership is an essential element for successful fiscal consolidation.