Japan in meltdown warning over debt
Japan warned today it is at risk of a financial meltdown on the scale of the Greek crisis if it does not deal urgently with its swelling national debt.
New Prime Minister Naoto Kan’s blunt assessment appeared designed to push forward his political agenda, which may involve raising taxes.
In his first address to parliament after taking office this week, he said Japan, the world’s second-largest economy, cannot continue to let government debt swell while state finances are under pressure from an ageing and declining population.
“It is difficult to sustain a policy that relies too heavily on issuing debt. As we have seen with the financial confusion in the European community stemming from Greece, our finances could collapse if trust in national bonds is lost and growing national debt is left alone,” he said.
Japan has the largest debt among industrialised nations at 218.6% of its gross domestic product in 2009, according to the International Monetary Fund.
The warning is a worrying confirmation Europe’s leading nations are not alone in struggling to cope with record levels of debt.
After amassing a vast public debt and overspending to the tune of 13.6% of gross domestic product in 2009, Greece was saved from defaulting on its loans by a rescue package from the International Monetary Fund and the 15 other nations that share the euro.
Mr Kan, Japan's sixth prime minister in four years, promised his government would work closely with the Bank of Japan to avoid an increase in deflation and will also consider raising taxes, an issue he said previous governments had been too timid to face.
But he said he aims to have the economy grow by more than 2% annually by 2020.
Analysts said Mr Kan’s warning comparison with Greece is an overstatement, since the Japanese investors who hold the majority of the government's debt are seen as long-term stakeholders who are less likely to bolt for other, more lucrative markets overseas.
“Greece had a huge public debt and huge overseas loans,” said Hiromichi Shirakawa, chief economist at Credit Suisse Japan. “Japan has a trade surplus, and it’s a major creditor nation ... I don't think Japan's fiscal conditions is facing a similar crisis.”