Letter: Where Japan Already Feels Like an Emerging Market | American Enterprise

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In discussing the fear of Japan returning to emerging market status (“Japan is haunted by a return to emerging-economy status”, Opinion, May 2) Leo Lewis omits to mention the abysmal state of that country’s public finances.

In many ways, those public finances are worse than those of most large emerging market economies.

According to the IMF, Japan is now running a budget deficit of 6.5 per cent of gross domestic product, while its gross public debt stands at a staggering 250 per cent of GDP.

The IMF notes that, under current policies, the public debt-to-GDP ratio will increase steadily in the long term to accommodate age-related spending pressures.

Japan’s poor public finances put the Bank of Japan on the horns of an emerging market monetary policy dilemma. If it does not raise interest rates, it risks inviting further currency weakness.

If it raises interest rates to defend the currency, it risks raising the government’s borrowing costs thereby putting the country’s public finances on an even more unsustainable path than that on which they currently find themselves.



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