Japan Economy and Debt Crisis

Japan’s Debt Crisis

First Published Date : February 13, 2011 ADawnJournal.com

Japan has always been seen as an economic powerhouse ever since the miracle growth of its economy occurred from the 1960s to the 1990s. Japan went from a war ravaged country to one of the leading economies on Earth. However, even one of the most powerful economies on Earth is not immune to the debt crisis.

One of the main reasons for Japan possibly moving into financial crisis is debt and the fact that the average Japanese individual holds part of the government-debt. In fact, domestic holdings of debt in Japan is 94 per cent, compared with just 50 per cent in the largest economy on the planet; the United States of America.

What’s more, Japan has the second largest debt compared to its gross domestic product on Earth with the country running its debt to 196 per cent of the GDP. You know what other country has more debt that Japan? Zimbabwe. Yes, that is right one of the most poorly run countries in Africa is the only country beating Japan in terms of debt load to GDP. Japan borrows 50 cents on every single dollar, which is a huge debt load.

Inflation is also increasing in Japan with meat and fruit prices reaching 10.3 per cent inflation in Japan. Compare that with other countries that are industrialized and in most cases it is 10 times as high.

Japan’s credit rating, once one of the best in the world has also been falling. According to Standard & Poor, which does the ratings for countries, the country fell from AA to AA- because of the aging population in the country (it has the highest life expectancy on Earth) and the high debt ratio of the government.

Many economists are looking at Japan right now since it weathered through much of the Great Recession without much trouble to its economy. However, with growing debt ratios, inflation and more in the country, there is cause for some to worry. Japan has the third largest economy on Earth behind the United States and China, and with the United States already dealing with financial crisis, having Japan fall into the same situation would be disastrous. Japan is also a huge importer of goods, and without its buying power, many other countries would then suffer with a loss of trade.

The domino effect is something that is worrying many investors and economists but if one thing Japan has proven to be it is resilient. There is a good chance that the country will manage through this crisis and possibly stave off financial meltdown.

Japan is a stable country and there is little risk of government protests but again it is not right to say it won’t happen. With more and more people taking on debt from the government, inflation and more, people could rise up and the stability of one of the most important nations on Earth could be threatened to the level not seen in over 50 years since World War II.