Japan has a debt to GDP ratio of 239.3%, around $11.8 trillion. This is significant because it means Japan’s debt is over twice as much as its annual economic output. Debt obviously comes with the need to pay it back with interest. Therefore, it is very unlikely Japan will payback all its debt anytime soon.
However, Japan’s debt is mostly owned domestically meaning it is very unlikely there will be a default because to do so would be incredibly damaging for its economy. Japan’s debt has been largely created by the buying of government bonds by the Japanese central bank (the Bank of Japan) – using the central bank to bail out the state. Interest rates on debt are currently very low. However, the risk remains that Japan could reach a situation where it is unable to pay off even the interest on its debt as the country’s deficit increases. This would make a default more likely.
Other major economies also have very high levels of public debt. The UK’s debt is 85.8% of GDP, the US’ debt is approximately 107% of GDP.
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