Japan is the most indebted government in the world, with gross borrowings of 976 trillion yen (Dh45 trillion) — 235 per cent of the country’s gross domestic product, and by some estimates still growing.
And now, because of political wrangling, the country may not be able to borrow the 38.3 trillion yen it needs to finance its budget deficit this year and service its debt. Opposition parties are insisting the government schedule an election before they support a bill authorising further borrowing. The government, which is expected to be voted out of office in the next poll, has so far refused to accept the demand. This stand-off is not new, but this time, the financial markets are so concerned that the government is meeting its bondholders to discuss the implications of such financing. Distracted by the European debt crisis and the looming danger of widespread spending cuts in the US, this threat to the vulnerable world financial markets was not widely expected. Japanese politicians must not hold global markets, which they need despite their reliance on local financial institutions, hostage to their narrow interests.
Japan has spent years and trillions trying to put an end to decades of stagnation that left the country’s banks with bad loans and over-inflated assets. Japan’s present quagmire is a warning for US and Europe unless they deal decisively with their economic woes.