Japan Is Building The World’s Largest Debt | The Reason Why

As I wrote earlier, this shift is not a reason to panic — and certainly not the financial doomsday many social-media reels are predicting.

Rather than focus on Japan’s 250% gross debt-to-GDP ratio, consider its net debt at 140%. This gap is especially relevant for Japan. By comparison, the US gross debt is 120% and net debt is 96%. Japan is also unique among advanced economies in reducing its debt-to-GDP ratio since 2020.

Another stabilising factor is that almost 90% of Japan’s government debt is held domestically. So, no need to worry about capital outflows. Similarly, Japanese government bonds have long maturities of more than nine years. That means the government will not feel the pinch of rising interest rates immediately. Top rating agencies still see Japan as a safe country (A-rated) to invest in.

Finally, there is no need to worry that Japanese investors will suddenly sell off huge amounts of foreign bonds, like US Treasuries. State Street Global Advisors writes that these investments are made for the long term and not for speculation. So, dramatic selling is unlikely to happen, and thus, there is no need to panic.