Why the Japanese state is more solvent than you think

As the debt crisis in Europe grows, some analyst-eyes are on Japan. With gross debt at 200%, some think it will be the next to feel the pressure. They are probably wrong.

Is Japan bust? Will it be the next Greece? The next Italy? I looked at this very briefly last week(How the euro-crisis could affect your investments) but I think the answer is a pretty clear no. There is a view that it won't be long before Japan- rather like Greece- buckles under the weight of its enormous debts and defaults via a huge money printing splurge. The result will be hyper-inflation and the total collapse of the Japanese economy. This is, of course, perfectly possible.

After all, Japan's gross debt is running at around 200% of GDP (yikes), it barely raises enough in tax revenues to cover its financing expenses and at some point, that problem is going to have to be confronted. However, the first thing that makes it less possible than the bald number suggests is that Japan's net debt is only around half that. Nicholas Smith of CLSA (who does not think that Japan is remotely bust) notes that the asset side of Japan's balance sheet has a lot going for it.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up
Explore More
Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.