Japan's Sovereign Debt Risk Research

In the world financial market, sovereign debt risk caused by the recent financial crisis has grown increasingly prominent. Following the outbreak of the Eurozone debt crisis in2010, a number of leading economic powers such as England, the United States, and Japan are facing complications with asset security and liabilities. For resisting the crisis and stimulating the economy, the large-scale expansion of national debt is unpromising, and with government deficits and debt evident on a global scale, the world economy is at risk.Due to Japan’s economic depression of the past20years, tax revenue remains much unchanged. Faced with an aging society and rapidly increasing social security expenditures, only the massive issuance of treasury bonds can make up for the government’s financial deficit and attempt to cast off the economic slump. As of2011, national dept surpassed900trillion yen and reached over200%of GDP, clearly aggravating the burden of accumulating liabilities.This paper conducts a systematic, in-depth study of sovereign debt management policies and their sustainability. Supported by data from1980to2010, it analyzes the root causes of Japan’s situation, and serves as a comparative study of debt in Japan and Europe by using current theoretical models of the Eurozone debt crisis. It puts forward realistic warnings as well as recommendations regarding Japan’s economic future. Through multilevel composite index analysis, this paper establishes a comprehensive appraisal system for sovereign debt risk by distinguishing between observed discrepancies in Japan’s national budget and its current accounts, loan system, tax revenue, and administrative operation among others. Due to its robust financial institutions, it is unlikely that a debt crisis will occur in Japan for the time being. Yet given the strain put on the economy by the appreciation of the Japanese yen, the deficit issue will be difficult to resolve, and if no steps are taken, it will bring unsustainable risk to the Japanese economy. In addition, this paper considers the effect of damages from the recent earthquake and nuclear leak on Japan’s credit rating. Finally, it puts forth a number of recommendations for ordinary citizens confronted with a risky national debt policy.