But the most striking thing is: with a debt-to-GDP ratio of over 229 percent, Japan, which has surpassed even Zimbabwe in this indicator, has almost benchmark credit ratings from leading rating agencies. The debts of Greece, which turned the entire Old World upside down, amount to only 160 percent of GDP. And the third-largest economy in the world, it turns out, is above the law. Unemployment in Japan is only 5 percent, the trade surplus has been maintained for decades, and the population has the highest level of personal savings. What is the secret? Why hasn't the excessive debt killed the 'Asian dragon'?
To answer this question, and also to understand whether there is life after Fukushima in the country, the weekly 'Itogi' delved into the intricacies of the Japanese economic miracle on the ground.
Their Heavy Debts
The national character of the Japanese is the key to understanding not only the history of this country but also the current state of its economy. Insularity, responsibility, love for the homeland and respect for one's heritage, as well as civic consciousness – all these qualities can be traced even in dry financial statistics. And lately, it has been staggering the imagination.
Is a quadrillion yen a lot or a little? For example, former Japanese Finance Minister Hirohisa Fujii said that Japan's public debt situation is now worse than any other country on the planet. 'Politicians must realize the fact that the same thing could happen to Japan as happened to Europe,' he gave a depressing forecast. Almost simultaneously, the rating agency Standard & Poor's admitted that it might have to lower Japan's sovereign rating.
'Yes, public debt is a big problem along with the budget deficit. Through the issuance of government bonds, the government covers up to half of the expenditure items of the treasury, but at the same time does not make significant efforts to correct the situation,' David Rea, an economist on Japan at Capital Economics, told Itogi.
Here is the thing. If foreign investors were the main holders of Japanese debt, the whole world would have long forgotten about Greece and would follow every statement from official Tokyo with bated breath, fearing a financial catastrophe. 13 trillion dollars is not the measly hundreds of billions of Greek debt, nor even the one and a half trillion of Italian debt. A default on such an amount could simply blow up the global financial system. But no: the average Japanese cannot allow national disgrace. It is the citizens of the Land of the Rising Sun themselves, according to Capital Economics, who hold about 96 percent of its debt obligations through insurance companies, pension funds, and banks.
The fear of losing face, which is at the core of national culture, actually saved the Japanese financial system from collapse during the height of the 2008 crisis. Local players, unlike their European or American counterparts, preferred not to indulge in fancy financial instruments based on risky mortgage loans. The same went for ordinary Japanese households, which were guided by the principle 'less is more' and kept the bulk of their savings in bank deposits with meager yields (the refinancing rate in the country currently ranges from 0 to 0.1 percent).
And when things began to heat up in Europe, the repatriation of Japanese national capital began. For example, in November alone, Japanese investors sold international assets worth $16.4 billion.
Thanks to this, the country's public finances are currently afloat, and the government has the opportunity to borrow money almost for free: the yield on 10-year bonds fluctuates within one percent. By the way, German 'Bunds' with a similar maturity have a yield more than three times higher.
The potential accumulated during the 'Japanese economic miracle' also remains sufficient to this day. The country has had a positive balance of payments since 1981, which in 2011 is forecast at more than 2 percent of GDP. Apart from Germany, no one else in the G7 can boast such a figure. This means that the Japanese government can continue to accept money from domestic investors almost painlessly in the near future.
Finally, unlike the eurozone countries, Japan has its own national central bank, which can act as an issuing center. Even if foreign investors start dumping Japanese debt from their balance sheets – and that is no less than 42 trillion yen, or $545 billion – the financial regulator can easily buy it back. In 2010 alone, the bank purchased 39 trillion yen of debt.
Continued: UNSINKABLE ISLAND
Konstantin POLTEV.
