Japan Crisis in 2023 Awaits, University of Tokyo Professor Says

Japan will face a fiscal crisis in about a decade unless the nation undertakes fiscal consolidation in the “medium term,” according to Takatoshi Ito, a University of Tokyo professor and former member of the prime minister’s council of economic and fiscal policy.

Ito, also a former deputy vice-minister for international affairs at Japan’s Ministry of Finance, spoke today at a conference at Columbia Business School in New York.

On Japan’s debt ratio:

“In the medium term, it is recognized that we need the fiscal consolidation, basically cutting back fiscal deficits and lowering our debt-to-GDP ratio. Japan has already the highest debt-to-GDP ratio, about 200 percent.”

Greece went bust when their debt to GDP ratio was 160 percent.”

“It’s kind of a miracle why the Japanese fiscal situation is not into crisis yet. I’ve done some calculation on when the Japanese crisis will come, and that’s 2023.”

“So we have 10 more years to change the course of the Titanic. But in the medium term we need consolidation for sure.”

On Japanese government bond yields rising after the Bank of Japan’s latest easing program:

“It’s just confusion, I would say. I think the bond dealers do not understand why the Bank of Japan is making so big a change.”

“One part of the BOJ change was to lengthen the maturity of bonds that they’re buying.”

“This redistribution and addition of those purchases was not well communicated in the first week, so that the rates were jumping up and down. I think that has been communicated better, and I’m sure that will settle down.”

“When the economy becomes really strengthened, then rates should go up.”

To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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