Japan faces a wall of debt that can only be addressed by printing more money and debasing its currency. This means they will be paying off their debt with worthless yen where possible and in many cases defaulting on the promises they have made. Japan currently has a debt/GDP ratio of about 250% which is the highest in the industrialized world. With the government financing almost 40 percent of its annual budget through debt it becomes easy to draw comparisons between Greece and Japan. While adding to the markets move higher across the globe the latest move by Prime Minister Shinzo Abe should do little to boost confidence in the small island nation.
Entering the third quarter of 2019 Reuters reported their monthly Tankan survey showed that Japanese manufacturers had again turned pessimistic about business prospects. Confidence in the service sector also plunged. Amid the escalating Sino-U.S. trade war, and problems in China the prospects for a global downturn remain large. Survey results showed the weakest sentiment reading since April 2013. Concerns about weakening global demand intensified after a closely watched bond market indicator pointed to the growing risk of a U.S. recession, and data revealed Germany’s economy was in contraction.
Japan. the world’s third-largest economy is highly dependent on exports. The U.S.- China trade war in conjunction with Japan’s export curbs to South Korea and the rising yen has put a lid on sales. This has stoked the fears of recession and raised questions over how much longer domestic demand can remain resilient enough to offset rising external pressures. Private consumption constitutes about 60% of the Japanese economy. Adding to the stress is the fact Japan’s economy is now under pressure from a hike in the consumption tax to 10 percent from 8 percent. This increase took place on Oct 1st. The Bank of Japan has estimated this will generate a net burden of 2.2 trillion yen on households in fiscal 2020.
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