Japan Sovereign Debt Sustainability: Why the World's Most Indebted Nation Hasn't Collapsed (Yet)

Japan's Debt to GDP Analysis: A Comparative Study with Major Economies

Understanding Japan’s Sovereign Debt Sustainability: A Deep Dive into Causes, Risks, and Global Context

Introduction

Japan’s sovereign debt sustainability has baffled economists and policymakers for decades. With a debt-to-GDP ratio soaring above 230%, Japan holds the dubious distinction of being the most indebted developed country. Yet, unlike other debt-ridden nations that faced crises, defaults, or bailouts, Japan continues to function without major turmoil. In this post, we unpack the historical and recent reasons behind Japan's debt build-up and explore how its unique financial structure supports—at least for now—its sovereign debt sustainability.

In this report, we analyze why Japan’s debt-to-GDP ratio became so high, examining historical causes (like long-term fiscal policies, aging demographics, and past crisis responses) as well as recent factors (such as COVID-19 stimulus and monetary policy). We also summarize where the Japanese government spends its borrowed funds (e.g. social security, infrastructure, stimulus programs). Finally, we compare Japan’s debt profile – its structure, repayment ability, and economic context – with other highly indebted developed nations including the United States, Greece, and Italy, accompanied by a table of key metrics for each.

Historical Causes of Japan’s High Debt

Several structural factors and policy choices over the past few decades have caused Japan’s debt-to-GDP ratio to balloon:

• Persistent Fiscal Deficits since the 1990s: Japan has run large budget deficits almost continuously since the early 1990s. After its asset price bubble burst in 1991, economic growth stagnated (“the Lost Decade”), and the government repeatedly used fiscal stimulus to prop up the economy. These repeated deficits caused debt to skyrocket from about 60% of GDP in 1990 to around 240% by 2019 ​stlouisfed.org. In short, decades of deficitssteadily accumulated debt. Notably, Japan’s economy experienced near-zero real growth and mild deflation during much of this period, so GDP (the denominator) barely grew – exacerbating the rise of the debt-to-GDP ratio​stlouisfed.org.

• Aging Population and Social Security Costs: A key underlying driver of Japan’s deficits has been its rapidly aging population. Japan has one of the world’s highest elderly populations (30% of Japanese are 65 or older in 2024, up from ~18% in 2001)​stlouisfed.org. This demographic shift led to surging social security expenditures(pensions, healthcare, long-term care). Social security costs roughly doubled as a share of public spending – from about 17.5% in 1990 to one-third of all government expenditure today ​amro-asia.org. This created a persistent “social security deficit”: for example, Japan’s social security system ran a deficit equal to 4% of GDP in 1998, widening to about 9.4% of GDP by 2011 ​stlouisfed.org. In other words, nearly the entire fiscal gap can be attributed to social programs for an aging society. The government chose to finance these rising costs by borrowing rather than severe cuts or significantly higher taxes. As one analysis noted, Japan’s high debt “mainly stems from decades of persistent fiscal deficits and near-zero economic growth, both largely driven by Japan’s aging population.”​stlouisfed.org

• Avoidance of Austerity and Use of Stimulus: Unlike some countries that responded to rising debt with austerity, Japan often chose the opposite – increasing spending to stimulate the economy. Throughout the 1990s and 2000s, the government funded large public works projects (infrastructure like roads, bridges, etc.) and bank bailouts, adding to the debt. Even as the economy stabilized at times, Japan was reluctant to cut spending deeply, in part to avoid derailing growth. Tax increases were implemented slowly. (Notably, Japan did enact consumption tax hikes in 2014 and 2019 to raise revenue, but these were modest and came after many years of accrual of debt​ stlouisfed.org.) The net effect was a structural deficit: since 1998, Japan’s general government has run a primary deficit averaging 5% of GDP (and would have been in surplus if social security were excluded)​ stlouisfed.org. In essence, policy choices favored maintaining spending – especially on social programs and stimulus – even if it meant borrowing more.

• Deflation and Low Growth Trap: Japan’s chronic deflation and low GDP growth also made the debt ratio worse. For much of 1995–2020, inflation was near zero or negative, and real growth was anemic​ scoperatings.com. With nominal GDP barely rising, any amount of new borrowing would raise the debt-to-GDP percentage. For example, even in the 2010s when deficits narrowed (the deficit fell from 9.8% of GDP in 2009 to about 2.3% by 2018 after the global financial crisis), debt continued to climb because the economy was growing so slowly ​fitchratings.com. This stagnation meant Japan couldn’t “grow out” of its debt. In contrast, countries with high growth or moderate inflation often see debt ratios stabilize; Japan didn’t have that luxury during its deflationary period.

• Policy of Debt Financing Over Asset Use: Japan’s public sector also made a notable choice in how to finance obligations. Rather than draw down large existing reserves (such as the Government Pension Investment Fund reserves) to pay for social security benefits, the government opted to issue bonds to cover social security shortfalls, leaving those pension reserves invested in assets​ stlouisfed.org. This strategy meant higher gross debt but allowed the pension fund to keep growing (indeed, Japan’s social security trust fund assets grew from 36% of GDP in 1997 to ~60% of GDP by 2023) ​stlouisfed.org. It’s a double-edged sword: the government accumulated more debt, but in theory holds offsetting assets in pension and postal savings systems (the merits of this approach are debated, but it helps explain why debt was not curtailed by using savings).

Bottom line: By the late 2010s, Japan had a very high debt level due to structural deficits (largely driven by social security spending for an aging society) and decades of low growth. Gross debt reached about 236% of GDP in 2019​mof.go.jp and was on an upward path even before the next shock hit in 2020.

Recent Factors Driving Debt Higher

In the past few years, additional factors have added to Japan’s debt pile or influenced its sustainability:

• COVID-19 Pandemic Spending: The pandemic prompted one of the largest peacetime fiscal expansions in Japan’s history. The government rolled out massive stimulus packages in 2020–2021 (cash transfers, business support, etc.) to cushion the economic blow. As a result, Japan’s debt ratio spiked to about 261% of GDP in 2020 ​amro-asia.org. This was roughly a 20 percentage-point jump in one year – on top of an already high base – due to emergency deficit spending. In absolute terms, the government issued enormous quantities of new bonds (adding nearly ¥100 trillion in debt over a couple of years). By 2023, the debt ratio had edged down to ~242%​ amro-asia.org as the economy recovered and inflation turned “negative real interest rates” into a slight advantage (see below), but this improvement was driven by a rebound in GDP rather than fiscal consolidation. The COVID stimulus measures undeniably pushed Japan’s debt burden to new heights.

• Ultralow Interest Rates & Monetary Policy (Bank of Japan): A crucial recent factor has been Japan’s monetary policy, which indirectly enables the high debt. The Bank of Japan (BoJ) has kept interest rates at or near zero for years and engaged in massive bond-buying (quantitative easing). In fact, the BoJ’s policies under Abenomics (2013–2020) included purchasing government bonds on an unprecedented scale – so much so that the BoJ now holds over half of Japan’s government bonds outstanding ​statista.com. (As of end-2024, the BoJ owned roughly 52% of outstanding Japanese Government Bonds by value​ statista.com.) This means a large portion of Japan’s debt is essentially held by its own central bank. Moreover, about 87% of Japanese government bonds (JGBs) are held by domestic investors overall (banks, insurance, pension funds, BoJ, etc.), reflecting a very domestically financed debt ​amro-asia.org. The BoJ’s yield curve control policy (pegging the 10-year JGB yield at ~0% for many years) kept government borrowing costs extraordinarily low. As a result, Japan’s interest payments on the debt have remained minimal – around 1% of GDP, or on the order of 8–10% of government revenue​ tradingeconomics.com, which is much lower than in other high-debt countries. In 2023, “net” interest outlays were practically negligible (Scope Ratings noted net interest was only 0.5% of revenue in 2023) ​scoperatings.com. This ultra-easy monetary stance has been a recent contributor to debt accumulation: the government could borrow heavily without straining its budget, because the BoJ suppressed interest rates. Essentially, monetary policy allowed Japan to carry a 250%+ debt-to-GDP ratio without an immediate fiscal crisis, by keeping interest expenses very low.

• Recent Inflation Uptick: Paradoxically, the global inflation surge of 2021-2023 slightly improved Japan’s debt dynamics – at least temporarily. Japan finally saw some inflation (around 2-3% in 2022–2023 after decades of near-zero CPI growth​scoperatings.com). Higher inflation, combined with resumed economic growth as COVID disruptions eased, helped shrink the debt-to-GDP ratio a bit (as noted, from ~261% in 2020 to ~242% in 2023) ​amro-asia.org. Essentially, nominal GDP grew faster than debt for a brief period. However, the flip side is that the BoJ has started to adjust policy: it ended its negative interest rate by late 2023 and began allowing long-term yields to rise modestly. By 2023–2024, Japanese government bond yields inched up from record lows (the 20-year JGB yield hit its highest level since 2004 by late 2023) ​ainvest.com. This has raised concerns about future borrowing costs: even a small rise in interest rates could significantly increase interest expenses given the huge debt. The Ministry of Finance projected record-high debt service costs in the FY2025 budget (¥28.2 trillion for interest and principal payments) due to expected rate increases ​english.kyodonews.net. Thus, while recent inflation helped the debt ratio, it also heralds an end to the era of essentially “free” government borrowing. The BoJ is proceeding cautiously – it still buys bonds and caps yields – but monetary policy is at a crossroads. Overall, monetary factorshave been critical: without the BoJ’s interventions, Japan’s debt might have triggered higher yields or instability; with BoJ support, the government accumulated debt more easily.

In summary, Japan entered the 2020s with an enormous debt, then added further debt from pandemic stimulus. The saving grace has been an accommodating central bank and a captive domestic investor base keeping interest costs low. These recent contributors (emergency deficits and monetary easing) have sustained Japan’s high-debt status quo – albeit not without risks if conditions change.

Where Does Japan Spend Its Borrowed Money?

Given Japan runs persistent deficits, a natural question is: what does the government spend beyond its revenues, that necessitates so much borrowing? In broad terms, Japan’s annual budgets show that the borrowed funds primarily go toward social security, debt service, and various stimulus or public investment programs. Key spending areas financed by government borrowing include:

• Social Security Benefits: This is by far the largest component. As noted, social security (pensions, healthcare, long-term care for the elderly, etc.) now consumes about one-third of Japan’s budget ​english.kyodonews.net. For FY2025, the government allocated a record ¥38.3 trillion to social security programs​english.kyodonews.net. These costs consistently outpace contributions from current workers, requiring the government to cover the gap by issuing bonds. In essence, a significant share of Japan’s new debt each year goes to pay pensions for retirees and medical costs for its aging society. This share has grown over time and is the primary driver of Japan’s structural deficit​ amro-asia.org.

• Public Works and Infrastructure: Historically, Japan has funneled borrowed money into infrastructure projects, especially in downturns. In the 1990s and 2000s, large stimulus packages built roads, bridges, bullet trains, and other infrastructure across Japan (some critics argue this led to “bridges to nowhere,” but it did provide economic stimulus). Today, infrastructure spending is a smaller portion than social security, but it’s still notable. For example, the government often uses supplemental budgets (funded by debt) for construction projects to stimulate regional economies. Modern iterations include investments in resilience (e.g. disaster rebuilding after the 2011 Tōhoku earthquake was debt-financed) and digital infrastructure. While exact figures vary, traditionally Japan’s public investment has been in the high single-digit trillions of yen annually. These projects are financed substantially by government bonds.

• Economic Stimulus and Industry Support: The government also borrows to fund various stimulus and subsidy programs. A current example is investment in technology and strategic industries: the FY2025 budget includes state funding for sectors like semiconductors and AI – e.g. ¥100 billion for a domestic semiconductor venture (Rapidus Corp) ​english.kyodonews.net. This kind of spending, aimed at boosting growth or competitiveness, often comes from newly issued debt. Likewise, during COVID-19, trillions of yen in emergency aid to households and businesses were financed by bond issuance. Whether it’s consumer stimulus (e.g. shopping coupons, travel subsidies) or industrial policy (subsidies for innovation, green energy, etc.), Japan frequently turns to debt-financing to stimulate the economy during slowdowns.

• Defense and Other Government Functions: Defense has traditionally been a relatively small share of Japan’s budget (around 5% or less). However, recently defense outlays have risen (Japan is expanding military spending amid regional threats). In FY2025, defense spending is ¥8.7 trillion​ english.kyodonews.net, roughly 7.5% of the budget, and is partly financed by debt as well. Other government functions like education, public safety, and local government transfers also contribute to deficits if revenues are insufficient, but these are not growing as fast as social security. Still, borrowing helps fund education grants, R&D programs, and so on.

• Interest on Existing Debt: Importantly, a portion of each year’s budget (and thus each year’s borrowing) goes to servicing the existing debt. With such a large debt stock, even low interest rates add up in absolute terms. Japan’s interest costs have been contained by low rates, but they are not zero. In the FY2025 budget, debt servicing (interest + debt redemption) is estimated at ¥28.22 trillion​english.kyodonews.net. This accounted for roughly a quarter of total spending​english.kyodonews.net. In other words, Japan has to keep borrowing partly just to pay interest on past borrowing – a classic debt spiral concern. (However, note that a good chunk of these “interest payments” cycle back to domestic holders like the BoJ or pension funds.) Still, debt service is a heavy line item that must be financed; any rise in interest rates will increase this burden further.

Because Japan’s tax revenues are not enough to cover all these expenses, the shortfall is met by issuing new government bonds each year. For instance, in the FY2025 draft budget (totaling ¥115.5 trillion), tax revenues are projected at ¥78.4 trillion, and the remaining gap – about ¥28.65 trillion – will be filled by new debt issuance​english.kyodonews.net​english.kyodonews.net. In fact, roughly one-quarter of annual spending is funded by borrowing in recent budgets english.kyodonews.net. Most of that borrowing ultimately supports social security and stimulus programs (with a smaller portion effectively refinancing interest).

To summarize, Japan spends its borrowed money mainly on the social safety net (pensions/healthcare), and to a lesser extent on infrastructure, economic stimulus initiatives, and lately a bit more on defense. A significant amount also goes toward paying interest on existing debt. These priorities reflect Japan’s attempts to support its large elderly population and sustain economic growth, even at the cost of running deficits.

Comparison with Other High-Debt Developed Nations

Japan’s debt situation is unique in scale, but other developed countries also have high debt-to-GDP ratios. It’s useful to compare Japan vs. the United States, Italy, and Greece – three economies often noted for their debt levels – in terms of debt magnitude, who holds the debt, interest burden, and economic context. Below, we first discuss qualitative differences, then provide a table of key metrics.

• Debt Levels: Japan’s debt-to-GDP (~235% in 2025) is by far the highest among major economies​ainvest.com. The U.S., by contrast, has a debt ratio around 120–130% of GDP (U.S. federal debt was ~123% of GDP in 2022​mof.go.jp, and debt held by the public about 99% of GDP in 2024​pgpf.org). Italy’s debt is about 140% of GDP​mof.go.jp, and Greece – which once exceeded 200% – has brought its ratio down to roughly 155–160% of GDP in 2024​statista.com after years of economic recovery and debt relief. So Japan’s debt load (as a share of the economy) is roughly twice that of the U.S., and well above even Greece and Italy (historically the Eurozone’s most indebted countries).

• Debt Holder Profile (Domestic vs. Foreign): One striking difference is who holds the debt. Japan’s debt is overwhelmingly held domestically. About 87% of Japanese government debt is held by Japanese investors​ amro-asia.org – including institutions like domestic banks, insurers, pensions, and notably the Bank of Japan. The BoJ alone holds ~50% of outstanding JGBs​ statista.com. This means Japan is largely indebted to itself; foreign investors play only a minor role. This domestic absorption has helped insulate Japan from external creditor pressure or sudden capital flight.In the United States, the debt is more widely held internationally. Foreign creditors (governments and investors from China, Japan, etc.) hold roughly 30% of U.S. federal debt (31% as of end-2023)​ sgp.fas.org, while the remaining ~70% is held by domestic entities (the Federal Reserve, U.S. banks, mutual funds, Social Security trust fund, and American households). The U.S. benefits from the dollar’s status as a global reserve currency – there is strong global appetite for U.S. Treasury bonds, which helps finance its deficits. But it also means the U.S. relies on foreign lenders more than Japan does.Italy is more like Japan in that a majority of its government debt is held domestically or by supranational institutions. Italian banks, residents, and the European Central Bank (ECB) hold a large share. At the end of 2024, about one-third of Italy’s debt was held by foreign investors, while the ECB/Bank of Italy held about 22% (from ECB bond-buying), and the rest (roughly 45%) by Italian residents and institutions​ statista.com. So roughly 2/3 of Italy’s creditors are domestic/European, 1/3 external – a mix between Japan’s and the U.S.’s profiles.Greece, having undergone international bailouts, has a creditor profile dominated by official foreign institutions. After its debt crisis, most Greek government debt was taken over by the European official sector. The majority of Greek debt is owed to the EU’s rescue funds (EFSF/ESM) and other official European creditors, rather than traded in the open market. Private foreign investors hold only a small portion of Greek bonds now. In effect, Greece’s debt is external – but owed to its Eurozone partners on concessional terms. This distinction matters: Japan (and to an extent Italy and the U.S.) can influence their own debt markets via domestic policy, whereas Greece’s debt conditions are largely set by agreements with external creditors.

• Interest Burden and Cost of Debt: Despite its huge debt, Japan’s interest burden has been very low – thanks to near-zero interest rates. Japan spends only on the order of <10% of its government revenue on interest payments​ tradingeconomics.com (and about 1–1.5% of GDP on interest ​imf.org). In concrete terms, Japan’s interest on debt in FY2023 was around ¥7.4 trillion​ statista.com (≈$50 billion), which is manageable relative to its budget. By contrast, the United States’ interest costs are rising rapidly as interest rates have increased. In FY2024, U.S. net interest outlays reached $882 billion (34% higher than the prior year) pgpf.org, which was about 14%–18% of federal revenue (U.S. federal revenue was roughly $4.8 trillion, so interest was ~18% of revenue). The U.S. now spends more on interest than on many departments’ budgets, and as a share of revenue its interest costs are catching up to Italy’s.Italy traditionally faced a heavy interest burden due to higher bond yields. Italy spends roughly 3.5% of GDP on interest, which is about 8–9% of its revenue s​tradingeconomics.com. This is one reason Italy must maintain primary budget surpluses – to cover interest payments. The ECB’s low-rate policies in the 2010s helped reduce Italy’s interest costs, but with yields on Italian bonds now around 4% (as of 2023–24), the burden may grow.Greece ironically currently pays less interest (as % of revenue) than Italy, despite higher debt, because its EU loans have below-market interest rates and very long maturities. The average interest rate on Greece’s ESM loans is only about 1.2%​ esm.europa.eu. As a result, Greece’s interest payments were around 7–8% of revenue in 2023​ data.worldbank.org and roughly 2.8% of GDP​ imf.org – lower than Italy’s. However, Greece is required to run high primary surpluses in the future as part of its debt agreements, to ensure it can service those loans when payments come due many years from now.

• Repayment Ability and Risk: Japan and the U.S. both borrow in their own sovereign currency and have independent central banks, giving them more flexibility in managing debt. Japan’s situation – with a captive domestic market and central bank buying – has meant it faces little immediate risk of default; the main risk is a gradual erosion of fiscal sustainability if interest rates rise or if domestic savings can no longer cover the deficits​ amro-asia.org​amro-asia.org. The U.S., while having a lower debt ratio, must consider that a growing portion of its budget is consumed by mandatory spending and interest. The U.S. has never defaulted in modern times (aside from technical debt-ceiling showdowns) and can technically print money to meet obligations, but its challenge is political (ensuring debt growth slows to a sustainable trajectory).Italy and Greece, being part of the Eurozone, do not control their own currency – they cannot unilaterally print euros to inflate away debt or set their own interest rates. This makes them more vulnerable to market sentiment. Italy’s ability to roll over debt depends on investor confidence and ECB support. In 2012, the ECB’s pledge to do “whatever it takes” (OMT program) was crucial to backstop Italy. Greece actually lost market access and required official bailouts in 2010–2018; its debt was restructured with longer timelines (with repayments to the ESM stretching out to 2060)​ esm.europa.eu. Thus, Japan’s and the U.S.’s debt is considered sustainable in the sense that they can always nominally repay (via central bank or taxation), whereas Italy and Greece have faced liquidity or solvency scares in the past and rely on external frameworks to assure repayment. Notably, Greece underwent debt restructuring (private creditors took haircuts in 2012) and it is effectively repaying official loans rather than a wide pool of bondholders now.

• Economic Context: Japan’s high debt coexists with certain economic conditions: very low growth (Japan’s real GDP growth has averaged around 0–1% in recent years) and low inflation until recently. This contrasts with, say, the United States, which, despite high debt, has had relatively stronger growth (2%+ in 2022–2023) and higher inflation of late (U.S. inflation hit ~8% in 2022 and ~4% in 2023). A growing economy like the U.S. can carry more debt more easily than a stagnant one, and inflation erodes debt over time (though too much inflation raises interest costs). Italy has struggled with chronically low growth as well (its economy is barely larger now than 20 years ago, and 2023 growth was under 1%​ statista.com). Italy also faces demographic aging and youth unemployment issues, meaning it has Japan’s growth challenges without Japan’s monetary autonomy. Greece went through a depression-level contraction (its GDP shrank ~25% during the debt crisis), but in recent years Greece has seen a rebound – around 5–8% growth in 2021–2022 post-COVID, then ~2.3% in 2023​ ebf.eu – outpacing the Eurozone average ​ebf.eu. Even so, Greece’s economy is small, and it relies on continued reforms and EU support to sustain confidence ​esm.europa.eu​esm.europa.eu. In terms of inflation, Japan until 2021 had deflation or ~0% inflation, whereas the U.S. and Eurozone had moderate inflation (and higher recently). Greece and Italy, as euro members, experienced the Eurozone’s recent inflation spike (~5–9% in 2022, easing to ~3–6% in 2023). Japan’s inflation is lowest of the group (~3% in 2023), reflecting its different economic environment​ scoperatings.com.

These differences illustrate that a high debt-to-GDP ratio can have different implications depending on who holds the debt, what interest rate is paid, and the country’s economic and monetary framework. Japan’s debt is uniquely large but also uniquely sheltered (domestically held at low rates). In contrast, Italy and Greece, with high but lower debt ratios, have faced much more market pressure historically because their debt was viewed as riskier (held externally and without currency control). The U.S. sits somewhere in between: a high debt ratio but the benefit of the world’s reserve currency status.

Debt Metrics Comparison (Japan vs. US, Italy, Greece)

The following table summarizes key debt metrics for Japan and the three other countries, to facilitate direct comparison:

Comparison of Debt-to-GDP Ratios and Economic Indicators Among High-Debt Nations: Japan Leads with 235% Debt-to-GDP, Followed by Greece, Italy, and the United States in 2025.

Sources: IMF, World Bank, Japan MoF, national data​ainvest.com​amro-asia.org​statista.com​sgp.fas.org​tradingeconomics.com​pgpf.org​tradingeconomics.com​statista.com​data.worldbank.org​esm.europa.eu (see references for details).

(Note: “Revenue” refers to general government revenue for consistency. US debt-to-GDP here is gross federal debt. Greece’s debt holders are mostly official (EU/ECB/IMF), which we classify as external. GDP growth and inflation are annual 2023 figures.)

Conclusion

Japan’s debt-to-GDP ratio has reached extraordinarily high levels (around 235% of GDP) due to a combination of long-term structural factors and more recent policy choices. Historically, persistent fiscal deficits – largely stemming from social spending on a rapidly aging population – and near-zero economic growth created a mounting debt load​ stlouisfed.org​amro-asia.org. The government’s responses to various crises (from the 1990s banking crisis to the 2008 global recession) often involved large-scale stimulus financed by debt, further adding to the burden. In the 2020s, the COVID-19 pandemic drove debt even higher through emergency spending​ amro-asia.org, although a return of modest inflation and growth has slightly trimmed the debt ratio from its peak.

Despite its size, Japan’s debt has been made manageable so far by unique factors: the overwhelming majority is held domestically, and the Bank of Japan’s ultra-loose monetary policy has kept interest costs extremely low ​amro-asia.org​scoperatings.com. This has allowed Japan to carry a debt load (235% of GDP) that would likely be unsustainable elsewhere, without experiencing a financing crisis. In contrast, other high-debt nations like the U.S., Italy, and Greece have lower debt ratios but often face higher interest rates or reliance on foreign creditors, which impose more immediate discipline or risk. For example, the U.S. must contend with rising interest expenses as global rates climb, and Italy and Greece, lacking monetary sovereignty, depend on investor confidence and European support to roll over their debts.

Looking ahead, Japan stands at a crossroads. The pressures of an aging society are only growing – social security expenditures will continue to rise​ amro-asia.org – and domestic savings (which fund the debt) may decline as the population ages​ amro-asia.org. The “easy money” era of near-zero interest may be fading if inflation persists. The Japanese government recognizes that it eventually needs to restore fiscal health; initiatives such as modest tax hikes and plans to achieve a primary budget surplus have been discussed for years. Yet, meaningful fiscal consolidation is challenging amid economic concerns and political trade-offs. The comparisons with other nations underscore that while high debt has not felled Japan yet, long-term sustainability is not guaranteed – it will require carefully balancing fiscal reform with policies to revive growth. Japan’s experience shows that a country can live with very high debt for a long time, especially under special conditions, but it also serves as a warning: without structural adjustments, even a very patient bond market can be tested. In the end, ensuring Japan’s debt is sustainable for future generations will likely involve tough choices, including possible revenue increases and spending reforms, particularly in social security​ ainvest.com​amro-asia.org. The world will be watching how Japan navigates this fiscal challenge, given the lessons – both cautionary and hopeful – that it offers to other indebted nations.

References: Japan Ministry of Finance, IMF World Economic Outlook and Article IV reports, ASEAN+3 Macroeconomic Research Office (AMRO) analysis, St. Louis Fed research, European Stability Mechanism data, and other sources as cited in-text.​ainvest.com​amro-asia.org​amro-asia.org​stlouisfed.org​stlouisfed.org​statista.com​sgp.fas.org​tradingeconomics.com​data.worldbank.org​