Features of the economy of Japan (1)

Japan recorded Government Debt to 266% of GDP in 2020, and the country's overall budget is approaching approximately minus 10%. As a result, the total debt balance in the government sector has increased every year, exceeding 1216 trillion yen as of March of this year. This makes it the country with the highest debt ratio in the world except for Venezuela.

There are not many countries or institutions that mention Japan's economic crisis or high risk caused by debt. As many people know, this phenomenon is due to several feathers of their economy.

1. As of 2020, Japan's Net External Worth stood at 356.97 trillion yen. Although it was reduced gradually, Japan’s Net External Worth is the largest in the world. The possession of such ample Net External Worth was obtained through Japan's economic revival in the past, but its influence and scale are still strong. In fact, it can be said that Japan is the only country with such a huge Net External Worth among countries with a high debt ratio.

 

2. Yen Currency is included in the SDR basket of the International Monetary Fund (IMF). Currencies listed in the SDR basket have unlimited currency swaps with the US dollar, and it means that Yen Currency has the status of a reserve currency in reality. With this status, Japan's Abe government even tried to enhance their competitiveness for exports in the world market by printing a huge yen to depreciate the yen. In fact, the issuance of yen without risk and restrictions brought about results that lowered their yen value to 125 yen per dollar in the short term in 2014, and are still defending at 110 yen per dollar in order to keep a weak yen.

 

3. One of the most impressive features of the Japanese economy is that the majority of Japanese government bonds are being bought by themselves in Japan. The biggest customer of Japanese government bonds is banks in Japan, and a number of other institutions are major buyers for Japanese government bonds. This is the fact that, after all, the Japanese people are the purchasers of Japanese government bonds. In particular, most Japanese people show an attitude of conformity rather than objection or criticism toward their government, so it is unlikely that there will be any need for redemption of their bonds in a crisis situation.

The above are unique characteristics to the Japanese economy and can be seen as the background for how Japan can withstand without major fluctuations despite its high debt ratio.In addition, the fact that abundant foreign exchange reserves or that many people still are considering the yen as ‘safe heaven’ can be a significant feather as well, but it seems unlikely to play an essential role.