One of the hardest-hit countries
during the global crisis and the
world's third largest economy, Japan is in danger of collapsing due
to its deep-seated problems, including deflation,
huge public debt, ugly demographics and earthquakes
throughout the history. It is also running one of
the largest structural budget deficits in the world. In fact, the prelude to the
current crisis began in the early 1990s when housing and stock markets
collapsed, leading to a prolonged recession. Two
decades of endless stimulative and low interest rate fiscal policies have made
the economy the most debt-ridden nation in the world. Even today, Japan is
incrusted by the same worries, except that the debt has tripled. Two decades
ago, Japan accounted for 14% of the global economy, but it is now worth just 8%.
In 1988, the top ten companies by value and eight of the top ten banks were
Japanese, but today none makes either list. Thus, once the powerhouse of the
world economy, Japan is now in deep decline.
The ratio of debt to GDP stands almost 227% and continues to rise. It
is the highest among major economies and double that of the US and
Germany and second only to Zimbabwe. If we go by the nominal GDP growth rate,
Japanese economy is no bigger than it was 17 years ago. In the debt equation
ratio, the denominator indicates no growth, while the numerator has
skyrocketed. As the ageing and shrinking
population puts pressure on the savings rate,
which has been trending downward, a dangerous signal for financing
government deficits, Japan seems to be at the
beginning of a debt trap.
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