Japan public debt
In August 2011, Moody's rating cut Japan's long-term sovereign debt rating by one notch to Aa3 from Aa2 inline with the size of the country's deficit and borrowing level. The large budget deficits and government debt since the 2008-09 global recession and followed by earthquake and tsunami in March 2011 made the rating downgrade. In 2012 the Organization for Economic Cooperation and Development (OECD) Yearbook editorial (Gurría 2012) stated that Japan's debt "rose above 200% of GDP partly as a consequence of the tragic earthquake and the related reconstruction efforts. Former Prime Minister Naoto Kan called the situation "urgent".
In order to address the Japanese budget gap and growing national debt, in June 2012 the Japanese National Diet, at the urging of Prime Minister Yoshihiko Noda of the Democratic Party of Japan, passed a bill to double the national consumption tax to 10%. The new bill increases the tax to 8% by April 2014 and 10% by October 2015. The goal of this increase was to halt the growth of the public debt by 2015, although reducing the debt would require further measures. The DPJ subsequently lost control of the Diet in late 2012, and Noda's successor Shinzo Abe, of the Liberal Democratic Party, implemented the "Abenomics" program, which involved an additional 10.3 trillion yen of economic stimulus spending to balance out the negative impact of the consumption tax increase on economic growth.
Abenomics led to rapid appreciation in the Japanese stock market in early 2013 without significantly impacting Japanese government bond yields, although 10-year forward rates rose slightly. Around 70% of Japanese government bonds are purchased by the Bank of Japan, and much of the remainder is purchased by Japanese banks and trust funds, which largely insulates the prices and yields of such bonds from the effects of the global bond market and reduces their sensitivity to credit rating changes. Betting against Japanese government bonds has become known as the "widowmaker trade" due to their price resilience despite fundamentals to the contrary.
Notwithstanding the stability of the market for Japanese government debt, the cost of servicing Japan's public debt uses up half of the state's tax revenues, and the cost of importing energy in the wake of the 2011 Fukushima disaster has also negatively impacted Japan's longstanding current account surplus.
- "Japan's Debt About 3 Times Larger Than ASEAN's GDP". August 10, 2013.
- Schwartz, John (11 August 2013). "Japan’s debt looks like this: 1,000,000,000,000,000 yen". New York Times. Retrieved 7 January 2014.
- Kan warns of Greece-like debt crisis http://www.japantoday.com/category/politics/view/kan-warns-of-greece-like-debt-crisis
- Asahi Shimbun UPDATE: Lower House passes bills to double consumption tax Retrieved on July 4, 2012
- Daily Yomiuri website Lower house OK's tax hike bills / 57 DPJ lawmakers rebel against vote; Ozawa 'studying various options' Retrieved on July 4, 2012
- "Don’t mention the debt". The Economist. 4 May 2013. Retrieved 7 January 2014.
- Barley, Richard (18 February 2013). "Japan's Relentless Bonds". Wall Street Journal. Retrieved 7 January 2014.
- Grimes, William (6 October 2011). "Japan's Debt Challenge". NBR. Retrieved 7 January 2014.