Japans public debt sustainability before and after COVID-19

Jérémie Cohen-Setton () and Keita Oikawa

Chapter 2 in The Sustainability of Asia’s Debt, 2022, pp 66-86 from Edward Elgar Publishing

Abstract: Japan's debt level has reached unprecedented levels. And yet, its debt has never been so cheap. Such disconnect between debt levels and debt service costs illustrates how the decline in interest rates has made traditional metric for assessing fiscal sustainability obsolete. Interest rates could, however, increase especially after the increase in debt associated with the coronavirus disease (COVID-19) pandemic. But neither bond markets nor plausible assumptions about the impact of the higher debt on interest rates suggest that the favorable interest rate-growth rate differential will be reversed for Japan. Japan will thus continue to be able to stabilize its debt-to-GDP ratio while running large primary deficits. For less advanced economies with weaker institutions and more foreign currency-denominated debt, the buildup in government debt during COVID-19 will, however, expose them further to reversals in funding conditions.

Keywords: Asian Studies; Development Studies; Economics and Finance (search for similar items in EconPapers)
Date: 2022
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