Japan’s economy on the brink: best-case and worst-case scenarios
Posted: Tue Jul 01, 2025 9:53 am
So, can this reconstruction demand be used as a trigger to help the Japanese economy escape the sluggish growth that has been present since the mid-1990s?
Yasuya Ueno, chief market economist at Mizuho Securities' Financial Research Department, is concerned about "short-term optimism and long-term 'ultra' pessimism." The typical path of this is an expansion of the fiscal deficit → a negative rise in interest rates → an economic downturn.
From a long-term perspective, even before the disaster, the Japanese remove background image economy was in a state of continued deflation due to a lack of demand caused by a decline in population, particularly the productive-age population aged 15 to 65. There were fears that the economy would enter a period of low growth. Furthermore, the fiscal deficit expanded, mainly due to the increase in social security costs caused by the rapid aging of the population, and the outstanding balance of government bonds rose to the worst level among developed countries. This resulted in a structure in which tax revenues did not increase, but debts increased.
Despite this, government bond interest rates, which represent long-term interest rates, have remained ultra-low at around 1.5% because almost all newly issued government bonds have been absorbed domestically. Domestic investors have continued to buy government bonds regardless of whether overseas rating agencies have raised or lowered the rating of Japanese government bonds. This has been supported by the enormous financial assets held by households, amounting to approximately 1,400 trillion yen. In comparison, the total outstanding long-term debt of the national and local governments was approximately 869 trillion yen (as of the end of fiscal 2010).
Yasuya Ueno, chief market economist at Mizuho Securities' Financial Research Department, is concerned about "short-term optimism and long-term 'ultra' pessimism." The typical path of this is an expansion of the fiscal deficit → a negative rise in interest rates → an economic downturn.
From a long-term perspective, even before the disaster, the Japanese remove background image economy was in a state of continued deflation due to a lack of demand caused by a decline in population, particularly the productive-age population aged 15 to 65. There were fears that the economy would enter a period of low growth. Furthermore, the fiscal deficit expanded, mainly due to the increase in social security costs caused by the rapid aging of the population, and the outstanding balance of government bonds rose to the worst level among developed countries. This resulted in a structure in which tax revenues did not increase, but debts increased.
Despite this, government bond interest rates, which represent long-term interest rates, have remained ultra-low at around 1.5% because almost all newly issued government bonds have been absorbed domestically. Domestic investors have continued to buy government bonds regardless of whether overseas rating agencies have raised or lowered the rating of Japanese government bonds. This has been supported by the enormous financial assets held by households, amounting to approximately 1,400 trillion yen. In comparison, the total outstanding long-term debt of the national and local governments was approximately 869 trillion yen (as of the end of fiscal 2010).