by Ewa Nowogorski
Japan is one of the most developed countries in the world, and like many other highly developed countries, its tax revenues usually don’t cover all government spending, resulting in national debt. But you might be surprised to learn that Japan actually has the highest national debt to GDP ratio. The national debt is more than twice the amount of annual gross domestic product. Specifically, it is about 234% as of 2021. It is estimated to be more than $9 trillion.
Japan is also the most indebted country in the world in terms of national debt per person.
And yet, this isn’t the worst debt to GDP ratio in the history of Japan’s economy. Namely, the post World War II ratio exceeded the country’s GDP. It was the result of financing the costly war with government bonds. The government dealt with the debt by introducing war indemnity taxes and printing out more money.
The situation improved in the following years, however, it all came to an end in the 1990s – also known as Japan’s lost decade. It is no wonder that Japan is among the most indebted countries, with the stock market crash and the financial crisis in the 1990s.This crash is related to the reason why Japan is in so much debt now. During the economic bubble, revenues were high and the number of bonds issued were modest. But after the crash the number increased sharply, but the fixed interest rate on those bonds remained the same. Because this didn’t match the tax revenues, the GDP to debt ratio increased, and economic conditions have been pretty stagnant ever since.
With the 2019 coronavirus outbreak and the nearly 5 years of preparation for the Tokyo 2020 Olympics, including the construction of an extremely expensive stadium, the debt continued to increase, and it is still increasing to this day.