For starters, public debt such as government bonds are liquid and safe financial assets, with diverse maturities up to 40 years. As such, there is high demand among banks and insurance firms for public debt in the absence of alternative financial assets in Japan. Second, Japan’s persistent current account surpluses and correspondingly substantial net external financial asset position have enabled Japanese borrowers to rely largely on domestic capital, thereby avoiding foreign debt crises. Third, the Bank of Japan currently holds nearly half of all government bonds to achieve its 2 percent inflation target through unconventional monetary easing. The resultant lower yields have reduced the government’s interest payment. Moreover, efforts to … Continue reading Sayuri Shirai