Sunday, October 6, 2013

What are the numbers for Japan?

This post is to collect together some information on Japan and to point out a confusion that I and I think some others have from the Japanese numbers.

Video's on Japan situation

OtterWood video on Japan.

Kyle Bass video on Japan.

My posts on Japan

Japan will soon be zooming past their inflation target of 2%.

Japan is already printing money at hyperinflationary rates.

Japan to be First Currency Domino.


I was commenting on Sumner's blog and he pointed out that my numbers for Japan did not look right.   The Japanese ministry of finance web site made it seem like national debt service was already about 25% of expenditures and  50% of taxes, even at near zero interest rates.  However, Krugman says this 25% includes principle for bonds coming due

It is not clear from the MOF web site how much is spent on interest.  Kyle Bass, and someone trying to rebut him, say that interest is about 25% of taxes.  This would mean half of the reported "national debt service" is interest and half principle.

Sumner also says that for hyperinflation it is only the net debt to the public that matters.  He says for Japan this is about 100% of GNP.   It does make sense that net debt is the correct number to use.  This also explains why Japan could get debt over 200% of GNP without hyperinflation

An article in the economist has Japan's net debt at 114% of GNP in 2010.   This article has net debt, years to maturity, and primary budget balance.  These all are important factors when looking at the chance of hyperinflation.


  1. That's a bit confusing. So what part of the total debt is not included in the net debt? Debt held by the Bank of Japan? Haven't BOJ bought that debt with reserves (also debt)? Or is it something else?

    1. No, the problem is that it looks like Japan is spending about 25% on interest and really that seems to be interest plus bonds coming due. Will try to clear this up.

  2. Isn't that another issue? Sumner writes "Net debt is debt owed to the public. I.e. the total amount of government debt, minus that debt owned by the Japanese government." Clearly he thinks some part of the debt shouldn't be counted as a risk for hyperinflation. The question is what part of the debt is that? And where do you find the number that net debt is half of nominal debt? If the Japanese government really owed half of it's debt to itself it could retire it. I don't think this is the case.

    1. A big part of the US debt is really an IOU to the empty Social Security Lock Box. Japan probably has something similar. I have not located a source for the numbers yet.

  3. I was trying to delete something else and accidentally deleted the following from Storpappa:

    I don't know if this gives any clues: I find it hard to locate 50% that would be owed by the government to itself. And even if some of it is only promises on paper, well all of it are, as long as it is politically easier to inflate than default I don't see why it shouldn't be counted. on

  4. Hi Vince, any luck finding more reliable numbers? I think your most recent post raised a lot of interesting questions. I remain very doubtful of Sumners view. I'm not saying that Japan is close to hyperinflation either. Although their debt is huge their defecit seems under control (below 40%). That would be another possible explanation why the could have a debt above 200% and not experiance problems with inflation.

    1. Sometimes life gets so busy I don't get to focus on blog stuff. :-) Probably will this weekend.

      The claims of "Japan spends twice what it gets in taxes" also seems misleading if part of that spending is principle on debt which is really being rolled over.

      Yes, this seems to help explain why Japan has not yet had hyperinflation.

  5. You're right. Japan spends 50% of tax revenues on debt service with 0% rates across the entire yield curve. Debt service costs are a function of the total debt stock and interest rates. Interest rates are at all time lows and can't get any lower and the total debt stock at the current time step is equal to the total debt stock at the previous time step plus the deficit. The deficit already runs at around 10% of GDP and half of it is debt service costs alone while 70% of tax revenues go to Social Security with a rapidly aging population and the worst population demography in the world.

    Japan also imports all of its energy, which means that any further deterioration in the exchange rate would probably worsen the current account, and thus worsen the fiscal deficit as well. There is a nasty feedback loop set up here between the current account balance, fiscal deficit, government debt, and the value of the currency. The positive feedback loop is set to explode.

    When this thing blows, we will never have seen anything like it.

    1. But "debt service" is more than just interest. It would be nice to know how much just interest is.

      Krugman links to a 2003 report that has some information about interest. As long as interest rates were going down they could increase the debt and still sort of hang together. But if interest rates go up they are toast. So I think we can expect the central bank to keep buying bonds to keep a lid on the interest rates. But this means a flood of new money, which should cause lots of inflation. I think this really got going in April and it may take awhile to show up in prices. I would expect more out of the exchange rates in the not too distant future though. Prediction is hard, especially about the future...

  6. I was reading comments on a Krugman post and a comment seemed interesting and I am copying it below.


    At first I thought one could paint the japanese picture even more positive.

    9.8 tYen interest payments (page „7“ of MOF) are about 2 % of a roughly 500 tYen JP GDP. Together with above 1 t$ foreign reserves (ca 22% of GDP), and taking only central government debt into account (134% GDP, page „1“ MOF), as usual, one ends with a „net debt“ of „only“ 110%, as cited in

    With a „budget“ of 92 tYen (page „1“), this then translates into 9.8/92 = 10.7% (last digit given here always not significant, but for numerical synchronization only!).

    But, the japanese way of government accounting versus western corporate accounting cuts both ways! It also blows up the „budget“ number by a factor of 2.

    If you divide the 9.8 tYen interest payments by the tax 37.4 or total 48 tYen (=tax + other, page „1“) revenue, you get numbers of 20.6 or 26.2%, much closer to what Dan Senor claims.

    But, just that nobody gets bored, there are yet two other twists to that:
    a) JP should collect about 5 tYen interest on their reserves (long term 5% rates), reducing their „net interest paid“ by half in „normal“ accounting. This should be a large part of their „other revenues“.
    b) With the yen appreciating by about 120 to 87 yen/dollar or 38%, after End of 2007 to now, Japan „lost“ 8.4 % of GDP over 2.5 years in local accounting. It would be very interesting, how that is accounted for, given the underlying, systematic, long term, inflation differentials.

  7. This is another good article on Japan. It says interest is 30% of taxes and debt service is 60% of taxes.

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