The government has to return the money with interest under a repayment deadline, but if the amount of debt becomes too high, it will be difficult for the government to sell national bonds as many investors doubt if they can really get their money back.
This mechanism works as an alert, and the national government tries to drive down debt. However, the central bank -- the Bank of Japan -- is buying a huge amount of bonds in the market now, which makes the situation look like the government can borrow unlimited money without any cause for concern.
A: The movement of central banks buying national bonds that governments issued in huge amounts to respond to the coronavirus has spread worldwide. But central banks don't have unlimited money. If a government's debt becomes too huge and investors begin to think they won't get their money back, there will be concerns that the value of their currency will drop and prices will soar, bringing large-scale confusion to people's lives.
Morning Brief Podcast. Economy Agriculture. Foreign Trade. Company Corporate Trends. Defence National International Industry. International UAE. Saudi Arabia. US Elections World News. Rate Story. Font Size Abc Small. Abc Medium. Abc Large. With debt levels around two and a half times the size of its economy, Japan manages to keep government bond yields ultra low and investor confidence high that it can avoid default. How did we get here? Logistics How sustainable supply chains helped companies stay afloat in the pandemic.
Japanese households have been net lenders to the economy, at around percent of GDP per year in the early s, but declining over time to percent of GDP at present.
By comparison, the corporate sector used to be net borrowers a normal situation for companies, borrowing funds to make productive investments driving economic growth to the tune of percent of GDP in the s until Since then, the corporate sector has uncharacteristically turned into large net lenders—reaching a peak of 11 percent of GDP in before declining to around 5 percent of GDP in The combined net lending by the household and corporate sectors in Japan has exceeded net borrowing by the public sector, resulting in current account surpluses or net lending to the foreign sector.
For , the government deficit is expected to jump to 10 percent of GDP , boosting public debt to percent of GDP. The fiscal deficit will be accommodated by increases in net lending by the household and corporate sectors, consistent with currently weak demand conditions and high precautionary savings.
Beyond the foreseeable future, however, household savings as a share of GDP will resume its decline due to aging of the population—the old age dependency ratio is expected to rise from Running budget deficits will be more difficult, but necessary to service the public debt and support the pension and healthcare needs of a growing elderly population, while the number of working age people declines. Sign up for a weekly roundup of top expert insights and international news about how coronavirus is reshaping international affairs.
As a result, the United States has run a persistent current account deficit—borrowing from the foreign sector. The US fiscal deficit is expected to rise to The deficit could be accommodated by emulating Japan through growing net lending by the household and perhaps even the corporate sector—with consumption and investment being reduced amidst weakening growth. The United States can also borrow more from the foreign sector by widening its current account deficit. While the exact outcome will depend on policy choices, any alternatives will entail some difficult tradeoffs—despite what some economists say, there is no free lunch in running large public deficits and building up debt.
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