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Japan government budget painted into a corner [ClearOnMoney]
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Japan government budget painted into a corner

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Commentary

Japan government budget painted into a corner

6 Feb 2013 by Jim Fickett.

Last week the Ministry of Finance released a nice overview of Japan's Fiscal Condition. Japan may be pushing debt to extraordinary limits, but at least they are quite transparent about what is happening.

The fundamental problem is very clear. Since 1990 tax revenue has been dropping, while expenditures have continued to grow:

Japan's deficits and debt are the worst in the developed world. Here is the deficit:

And here is gross government debt:

Although interest rates have been in a falling trend for decades, rapid growth in debt has outpaced any benefit of falling rates, so that debt service has risen or, more recently, stayed approximately level. Currently the big squeeze on the national budget is social security, which has risen very rapidly as the population ages, and has forced cuts in other categories:

Things will get very interesting in a few months. The current head of the Bank of Japan is dragging his feet on Prime Minister Abe's goal of creating inflation. But soon Abe will install his own man. If the goal of creating inflation is met, JGB yields will rise and holders of JGBs will be tempted to sell, possibly creating a spiral that will make debt service impossible.