A Study On The Sustainability Of Public Debt In Japan

Now Japan is facing serious problems of public debt, both total debt and the ratio to GDP is the highest in history, and they are still rising. In2013, the total Japanese public debt to GDP has reached to243.22%. And by the end of March2014total Japanese national debt has reached to751million yen, it’s157.0%of GDP.Growing Japanese public debt casts a huge shadow for Japan’s future economic development outlook. It produced a series of questions. Why Japanese public debt carrying such huge debt still looks safe? Is it sustainable in the future? What risk factors will lead to Japanese government bond collapse in the future? And what measures should Japanese government take to solve public debt problems?The meaning of studying the sustainability of Japanese public debt, is not only to study the possibility of the Japanese government debt crisis outbreak, but also by studying what factors make huge Japanese public debt stable,and the various risks, then try to find the approach to solve the problem, to prevent the outbreak of the debt crisis. Japan is not the only country facing serious public debt problems, many developed countries like the United States, Germany, and a large number of developing countries are facing the same problem. Japan can give some references to these countries, and other countries can avoid making the same mistakes.Inspired by the current situation and features of Japanese public debt, this paper mainly studies Japanese public debt sustainability. First, analyse the sustainability of the Japanese public debt by traditional economics analysing. I think that the domestic bias, household sector’s long-term financial account surplus and the tradition of public finance is three main factors stabilize the huge Japanese public debt in long time. Second, by econometric methods, using Bohn’s (1998) method, establish a fiscal response function between Japanese primary balance and total debt, net debt and other data, from1980to2013, to explore the relationship between Japanese primary balance and total debt, net debt. Results showed that Japanese primary balance/GDP is negative react to total debt and net debt/GDP, showing that Japanese public debt is unsustainable. Future low birth rate&population aging, the monetary policies proposed by Bank of Japan and deterioration of fiscal expenditure structure are the main risks Japanese public debt is facing. Through econometrics and theoretical methods, we conclude that, if the Japanese government still maintain the same, not make any change, the Japanese government default risk will increase in the future.Main innovations in this paper is perspective, analysed the reasons make Japanese government bond low interest rates and high price, and maintain long-term stability of huge debt by traditional perspective of commodity supply and demand. Analyzed the risks the Japanese government will face in the future. The deficiency of this paper is the research on Japan’s public debt sustainability issues is not deep enough, and this paper comprehensive consideration. And we focus on the reasons of Japanese public debt relatively stable and future risks, so other aspects of the debt have to be thoughtless. In the empirical part, the selection of reference model there may be some academic loopholes, model maybe not well fit the reality, and hypothesis may be thoughtless, lacking academic preciseness.