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Japan’s Sovereign Debt

by Elaine Schwartz    •    Mar 13, 2011    •    244 Views

Hoping to sell more Japanese government bonds (JGBs), in a rather novel advertising campaign last June, the Japanese finance ministry said that, “Women have a thing for men who own JGBs.” Their message suggests that women prefer men who are “serious about money” and value “stability.”

Then, last January, Standard & Poor’s downgraded Japanese bonds to its fourth highest credit rating, AA-minus. With debt that has soared to close to 204% of its GDP, Japan owes a lot of money. By contrast, considered high, the outstanding debt of the U.S. is 70% of its GDP.

Seeing Japan’s debt ads and its debt size, this takes us to a concern. Now that they will surely need to borrow more for disaster expenses and reconstruction, will they increase their debt? The implications?

The Economic Lesson

Why compare GDP and sovereign debt? You can think of borrowing money to buy a million dollar house. For billionaire Bill Gates, it is a small obligation. For a typical wage earner it is a huge debt.

Similarly, a rich nation with a high GDP can borrow more because it has the affluence to pay it all back. But, how much is too much, even for affluent nations like the U.S. and Japan?

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