Title: When Will Japan's Debt Crisis Implode?
Headings: When Will Japan's Debt Crisis Implode?
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Content: We witnessed that since 1997, debt levels grew consistently, GDP growth stagnated and the returns of the 10-year government bonds were negative. Despite of these worrying indicators, Japan continues to be a stable and creditworthy nation that attracts investors. How Can Japan Tolerate Its Enormous Debt Level? First off, let’s have a look at how Japan got trapped in debt, especially after WW2 when the economy rose to power and prominence. Deflation has been Japan’s economic setback since the early 1990s. As we pointed out in previous dailies, the expected asset bubbles that were created after the WW2 had finally burst in 1989, after the increase of inter-bank lending rate from the Bank of Japan. Once the stock market crashed and equity prices dropped, banks and insurance companies were left with lots of bad debt. The Japanese government and central bank supported these organizations by bailing them out and providing low-interest credit. Thus, these firms have to rely on support. But this eventually became unsustainable, so banking institutions had to be consolidated and nationalized.