Looming Debt Crisis Ahead for Japan?

With much of the G20 focused on the global impacts of the European debt crisis, disconcerting signs that Japan’s economy may soon be next were notably overlooked. The rate of interest payments on government debt has exceeded Japan’s economic growth for over a decade, and public revenues have been unable to pick up the slack.  This has caused Japan’s debt to GDP ratio to hover dangerously close to 200%, more than any other industrialized country and far above Greece with only 115%. The global financial downturn has only exacerbated the situation and may ultimately bring down Japan’s fragile economy as it did in Greece, a scenario which would have widely-felt reverberations throughout East Asia, and would only enhance China’s clout in the region. 

Potential paths out of the crisis for Japan have only recently started to emerge.  On June 17, Japan’s newly appointed Prime Minister, former finance minister Naoto Kan, announced plans to tackle the country’s spiraling debt by increasing the consumption tax. 

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