Why Japan’s debt is much lower than you think

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Japan government is FILFy rich

I don't think that sounds scary at all. It's basically just state banking. The interests are owed to the people who buy the thing. It's not quite a straightforward credit creation process, but its basically just a statebank.

Very interesting.

The more I learn about national debt and currency exchange rates the less I understand. It feels like what's up is down and the world doesn't really work the way I would expect.

I'd appreciate more videos on these topics.

Ive been hearing about a debt crisis since ronald Reagan was in office and debt was 30% of gdp.

Interesting topic 😅 thanks alot

With 20/20 hindsight it's now obvious that every nation should have started a sovereign wealth fund in mid-1970s when the world left the gold standard. Instead of privatise their public infrastructure: public transport, public banking, public postal service, public telecom transfer them to this sovereign wealth fund. Demand a 75% royalty on the exploitation of any natural resources, flowing into this sovereign wealth fund. Invest any dividends, income from bond sales, income into the national & expecially the worldwide economy. Put the constitution limits on how much parlement may extract per year, long term investment goals, & maybe even let it hold the nation's gold reserve?

A definite reason to not do a 100% conversion is long term care. I have a large pension and will have a high $$ benefit when I start collecting at 70 in 3 more years. I’m converting as much as I can up to IRMAA third tier which is also taking some of it into the 24% bracket. Even if I could convert it all, I wouldn’t in case I need long term care. I’m making sure I have an estimated 3-4 years in my traditional IRA which I can then itemize to not pay any tax on that amount.I Would say More emphasis should be put into day trading as it is less affected by the unpredictable nature of the market.i have managed to grow a nest egg of around 85k to a decent 532k in the space of a few months.Thanks again Alyssa Zentner, for the regular updates,..

a goverment short its own currency to gain profit? short-sighted

This is the video I needeed all this time, thank you prof.

Though, while I absolutely agree with professor Goodhart on old age = inflation (super intuitive), when I checked Japan's inflation figure on tradingeconomics, their SERVICE inflation (the part that always require actual employees to be there thus more influenced by population as opposed to importing cheap stuff made oversea) is consistently lower than overall inflation, lower than central bank's target, which is really puzzling to me. The website doesn't clarify what the service means or includes so I may misunderstand their intention. Hope to hear your thoughts.

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Love the content and deep dive into the topic! However, a few nit picks: if the assets held by the government system are mostly US treasuries, I wouldn't call that a hedge fund. More importantly though, summing up all assets and liabilities across the system hides incentives and costs for each part. The central bank holds Japanese government bonds, so in theory this cancels reach other out, but if the BoJ raises interest rates, the central government has to increase interest payments, including to the BoJ. This will grow the government deficit and at some point this could hit a negative debt spiral. The BoJ could buy up the debt, but then there is a risk of hyperinflation.

The way I’d frame the paper cited in the video is that it’s not a celebration of Japan’s fiscal brilliance; it’s an autopsy of how far Japan has pushed financial repression to keep a very large public balance sheet workable. The authors start from the premise that Japan’s public liabilities are genuinely huge after decades of deficits tied to aging and slow growth, and that this is not a story of hidden fiscal virtue. When they describe Japan as having a “sovereign wealth fund from borrowed money,” they are pointing out that the public sector borrows extremely cheaply at home and holds a sizable portfolio of risky domestic and foreign assets, not claiming that Japan has magically solved its debt overhang.

Financial repression is the core mechanism that makes this possible. In their work on Japan, they stress that policy and the structure of the financial system funnel household savings into low‑yield deposits and safe instruments, while banks and other intermediaries hold large amounts of government liabilities and central bank reserves at very low interest rates. This allows the government to fund itself at below‑market real rates while earning higher returns on long‑duration bonds, equities, and foreign securities on the asset side of the consolidated public balance sheet. In their presentations they are very explicit that Japan is engaged in large‑scale financial repression and is effectively running a big maturity and risk transformation on behalf of taxpayers.

So the real takeaway is not “Japan’s debt is actually low and everything is fine.” The message is that Japan has bought time by engineering a leveraged, sovereign‑wealth‑fund‑like balance sheet funded through captive domestic savers at suppressed yields, and that comes with serious risk and distributional consequences. The authors emphasise that if interest rates rise, asset returns disappoint, or the repression regime weakens, the losses fall on bondholders, depositors, and taxpayers rather than disappearing. In that sense, the central point of the paper is to quantify and interpret this financial repression strategy and its risks, not to argue that Japan is cleverly and safely managing away its government debt problem.

Waiting for Atrioc to cover this

So basically BOJ faces a very similar situation to kevin warsh's Fed 😂

do you see this blue bar of japan ?
yeah thats what japan owns .
and do you see grey bars of UK and USA ?
yeah add them up together and you will get blue japanese bar!

So basically, the Mrs. Watanabe carry trade was just a bunch of Japanese government agencies stacked on top of each other wearing an apron

2:14 Because of Neoliberalism by economists such as yourself encouraging them to sell off state assets

So, in short … It is not about how much you borrow, it is about how smart you borrow.

10:00 They did implement austerity, the state pension in Japan is far less generous than in Western countries and they pay higher taxes. Like the 10% flat tax for inhabitants before income tax and social security. They also have higher corporation tax. Yet while British pensioners get £12k from the government, Japanese pensioners only get £4k from the government.

So you got that wrong completely. Japanese people pay higher taxes and get lower pensions than people in countries like the UK.

Right… but it can't be that because if it was "traders are actually looking at this number and not the traditional way of looking at it" we'd know because the traders are people. That's a very good reason why they should be charging Japan less but we know they haven't been doing the analysis this way so the reason can't be that they did the analysis this way and this is the answer they came up with!

The actual reason is we know bond markets do look at inflation and expected central bank interest rate changes and the BoJ was keeping, and gonna keep rates low because inflation was stuck low and so borrowing was cheap. So all of this analysis is a persuasive case about what happens next but the paper's conclusion about what happened in the past and why is obviously wrong.

Shouldn't Japan be worried about the USA debt situation? The USA spends one third of its budget for debt service, over 800 Billions, and it only got worse in the last years. When the US bubble pops, Japan is in even bigger trouble.