Japan is in serious trouble and it looks like there is no easy way out of the difficult challenges they face. The worst case scenario would be a currency collapse.
Japan’s Government: Out of Money, Out of Options
June 4 (King World News) – Gerald Celente: With a national debt more than twice the size of its economy, Japan is faced with rethinking its decades-long practice of using public money to affect social policy and keep the economy afloat.
For a quarter-century, borrowing and spending was easy. In 1999, the Bank of Japan (BoJ) dropped its key interest rate on loans to zero to rescue the economy after the yen’s value soared, then crashed.
The rate stayed at or close to zero through the Great Recession. When the economy failed to rebound, in January 2016 the bank dropped its rate to -0.10 percent, where it remained until March 2024. In three hikes since then, the BoJ has raised the rate to 0.50 percent.
However, the seeds of the current crisis were sown during that quarter-century of cheap money.
Interest rates near zero make borrowing almost cost-free; negative interest rates paid the borrower—in this case the government—to take out a loan.
As a result, when Japanese farmers were struggling, the government borrowed to subsidize them. When waves of rural residents moved to cities, the government borrowed more to make support payments to depopulated rural communities.
After spending deeply to shepherd the economy and population through the COVID War, the government kept on spending, now to buffer households against inflation and for increased defense capacity as China became more aggressive.
Today, farmers and families are crying for help as Donald Trump’s tariffs threaten Japan’s export-related economy. The population is aging, requiring more social spending on health care. Public pension payments are dispensed as usual.
The long-standing policy of paying to paper over deeper problems “has helped diffuse discontent,” Tobias Harris, founder of advisory firm Japan Foresight, said in comments quoted by The New York Times.
Now lenders are saying “no.”
A late May auction of 40-year government bonds was weaker than expected, meaning too few borrowers wanted to buy them. To entice investors, the finance ministry had to offer to pay interest rates near historic levels, at one point reaching a record high.
Normally, the BoJ would jump in and buy a swath of bonds at a low interest rate to keep borrowing costs manageable throughout the economy. However, the central bank has now begun gradually scaling back its role in the bond market.
The auction’s stumble was a signal that bond investors are skittish about Japan’s economic future and losing faith in the country’s ability to pay its debts.
There is no risk of an immediate collapse, economists agree. Most of the bonded debt is held by the BoJ or investors inside Japan; there is little risk that much of the money invested will be pulled out by foreign investors.
However, the signs are clear that the government has to drastically redirect its spending patterns.
“Yellow lights are flashing and at any moment any of them could turn red,” Koji Yano, a former vice-minister of finance, told the NYT.
Japan risks entering a vicious cycle: the government has to pay higher and higher interest to attract bond buyers. The government must then pay more interest, requiring more borrowing.
As the government soaks up a larger and larger share of money available for loans, interest rates become prohibitive and the economy has less and less capital for investment in growth.
Adding to the difficulties, a populist backlash is stirring against those urging the government to rein back deficit spending.
Creditors are reaching a point where “they say ‘enough is enough’,” Yano said. “It’s like a stew getting hot and then [boiling over]. Interest rates will spike.”
TRENDPOST:
Today, Bank of Japan (BoJ) Governor Kazuo Ueda said that the Japanese economy is modestly recovering despite some weakness, business is solid and corporate profits are improving.
However, he noted that there is a global economic contraction and that economic growth is expected to weaken as well as corporate profits since fewer products will be sold overseas.
Also, with tariff uncertainties, there is concern about overseas trade policies and fear that these uncertainties will push prices higher.
KWN Weighs In
King World News note: I have always predicted that the first major currency to hyperinflate would be the Japanese yen. There is simply too much debt and no way to pay it back. And they are rapidly running out of room to kick the can.
© 2025 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. However, linking directly to the articles is permitted and encouraged.
