Title: When Will Japan's Debt Crisis Implode?
Headings: When Will Japan's Debt Crisis Implode?
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Content: Based on this trend, we can figure out when the government will not have enough tax revenue to cover interest payments. You can see this trend using the graph below: Japan Tax Revenue v.s Interest Rate
One Road Research
By 2041, assuming tax revenue remains constant and there won’t be any economic shocks, Japan’s interest repayments will exceed tax income. Note that we also assume interest rate to stay at 1.1%, because if this figure increases then the government will default more quickly. An Economic Pandemic
As we stated above, Japan is still on the high ground because the government can sell most of its debts to its citizens, which is known as domestically held debt. Deflation (decreasing prices of goods and services) that occurs for long periods of time make government debt and other low yielding assets much more attractive. For example, if the price of goods drops by 1% while government bond yields 1%, then the overall return would be 2%. Japanese investors are currently satisfied with these returns, but the country has to increase national savings so that domestic purchasers continue to buy new government debt. Yet Japan’s population is shrinking and aging, so it’s highly doubtful that the country can increase national savings to a point where purchasing government bonds is sustainable. And because Japan is a net importer of goods, the only way to reduce debt is by having foreign investors.