It’s no secret that Japan is haunted by a snowballing amount of public debt that is about twice the size of the country’s gross domestic product.
But the worsening fiscal health has only been aggravated in the past year thanks to the coronavirus pandemic, which has forced the government to finance enormous outlays for an array of measures.
This fiscal year alone, the issuance of new Japanese government bonds (JGBs) will be about ¥112 trillion — the highest ever and more than double the previous record of ¥52 trillion seen in fiscal 2009, when the global financial crisis hit the country.
Experts say that increased spending due to the emergency is unavoidable but that Japan will need to start seriously discussing how it will be dealing with its debt once the pandemic eases — otherwise, it may face severe ramifications.
They also said the Bank of Japan’s exit strategy from its ultraeasy monetary policy will be a grueling issue, with the central bank’s ballooning balance sheet likely to pose a risk to the country’s fiscal sustainability somewhere down the line depending on the market’s situation.