Japan is an unquestionably peculiar example. There are quite a few elements at stake when considering the debt pile Japan got itself into. Before we dive in, it’s important to point out that Japanese debt is considered a safe haven by investors, hence boasting a very low probability of debt default despite its massive debt load. This is reflected by the near-zero interest rate stamped on its debt securities such as bonds.
Judging by the information I pieced together from my readings, this is not the first time Japan sees monumental piles of debt. Actually, during WWII, Japanese debt reached roughly 260%. The post-war era saw currency devaluation and inflation take hold, therefore reducing national debt in real terms. Other issues such as the need to address various financial crises over the past 40 years determined Japan to bring liquidity into the economy by issuing bonds. This is arguably the reason for the massive debt increase.
What doesn’t help is the demographic timebomb the country is facing. Japan has one of the oldest populations in the world, which pushes healthcare and social security costs up, eating away the government’s annual budget. The work ethic there is fairly crazy too. The fact that they have a word for “death by work” says a lot. It is the same work ethic that drives people to mental health issues, indirectly inflicting suicide on the younger population. (Did I mention there are various sites in Japan know as places where suicides occur rather frequently?) Drifting away from the grim social situation Japan is facing, the country’s push for automation helps address the highly deflationary trend of the ageing population. Some of the most reputable robotics companies such as Fanuc, Yaskawa and Nidec are Japanese. Usually, clients include companies whose operations focus on manufacturing (particularly in the industrials sector). There are various interesting trends to examine in this area such as cobots, mechatronics, and the list goes on.
Zooming out from the microeconomic landscape, the advantage of Japan over other countries is that its debt is mainly (if not entirely) sourced internally and, hence, denominated in its national currency, the YEN. This means that its YEN-denominated debt doesn’t fluctuate as a result of currency exchange. To put this into perspective, Argentina has a meaningful amount of debt denominated in USD. Should the USD strengthen against the value of the Argentinian peso, the debt of Argentina would consequently increase in absolute terms, hence putting further pressure on its ability to meet its debt commitments.
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