Japan: Looking Under the car bonnet – Schroders

10th March 2011

1. Demographics – it is true that over the next 50 years Japan's population could shrink to below 100m from today's 127m. The impact of this decline, which is certainly not unique, could be mitigated by higher female participation.

2. No growth in nominal GDP for 20 years – has led to a decline in consumption and the savings rate.

3. High debt to GDP – Japan's debt to GDP is just short of 200%, but on a net basis is more like 100%. This is still high but costs a lot less to service than in other countries due to close-to-zero short-term interest rates.

In addition foreigners only hold 5% of Japanese government debt which means Japan can work the issue out within the family. Japan has one of the lowest tax to GDP ratios among developed countries leaving substantial room for tax increases to reduce debt.

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