Fiscal Sustainability in Japan

14 Pages Posted: 15 Jun 2016

See all articles by Shiro Patrick Armstrong

Shiro Patrick Armstrong

Australian National University (ANU) - Crawford School of Public Policy

Tatsuyoshi Okimoto

Australian National University

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2016


Japanese government debt is at unprecedented levels with a gross debt to GDP ratio of over 230% and a net debt to GDP ratio of 150%. There are three big challenges to fiscal sustainability: the huge government bonds outstanding; continued budget deficits; and the growing age-related spending. The debt is sustainable as long as the market as a whole believes it is. The path to fiscal consolidation requires increasing the tax rate, reducing spending, broadening the tax base and growing the economy out of trouble. The longer the delay before moving to a more sustainable consolidation path, the larger the risks and closer Japan moves towards a financial crisis. The policy goal is to keep government debt sustainable, not to repay it all. Just as Japan has done since the burst of the asset bubble in the early 1990s there is every likelihood that the Japanese economy will muddle through.

Keywords: Japanese government debt; fiscal sustainability; debt to GDP ratio; fiscal consolidation

JEL Classification: E31, E61, E66

Suggested Citation

Armstrong, Shiro Patrick and Okimoto, Tatsuyoshi, Fiscal Sustainability in Japan (May 1, 2016). AJRC Working Paper No. 2, May 2016. Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University, Available at SSRN: or

Shiro Patrick Armstrong (Contact Author)

Australian National University (ANU) - Crawford School of Public Policy ( email )

ANU College of Asia and the Pacific
J.G. Crawford Building, #132, Lennox Crossing
Canberra, Australian Capital Territory 0200


Tatsuyoshi Okimoto

Australian National University ( email )

Canberra, Australian Capital Territory 2601

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