Column 　Finance and the Social Security System 　2018.03.23

【Aging, safety net and fiscal crisis in Japan】No.73: A fiscal collapse risk will increase in response to rising interest rates

In this column series, Yukihiro Matsuyama, Research Director at CIGS introduces the latest information about aging, safety net and fiscal crisis in Japan with data of international comparison.
Finance
Yukihiro MATSUYAMA
Yukihiro MATSUYAMA
Research Director

According to the 2018 budget shown in Column No.72, the annual figure for issued government bonds is 149.9 trillion yen (Figure 1), and the outstanding amount of Japanese government bond (JGB) issuance is expected to be 976.4 trillion yen (Figure 2) at the end of March 2019. The breakdown of 149.9 trillion yen includes 33.7 trillion yen for new government bonds to compensate for the financial shortage, 103.2 trillion yen for refunding bonds and 13 trillion yen for other bonds (Fiscal Investment and Loan Program, etc.).

The reason why Japan can continue to issue such large amounts of government bonds is that, due to the zero-interest rate policy, the interest payment has not increased. However, a 1% increase in the interest rate will increase the payment by 1.5 trillion yen. Moreover, the increase in interest payment will snowball, leading to an immediate risk of fiscal collapse.


Figure 1. Annual issue amount of national government bonds

180319_matsuyama_fig02.png

（Source）Ministry of Finance



Figure 2. Outstanding amount of national government bonds

180319_matsuyama_fig03.png

（Source）Ministry of Finance