Working Paper
Japan’s Debt Puzzle: Sovereign Wealth Fund from Borrowed Money
Abstract: We analyze the risks associated with Japan’s prolonged low-interest rate policies amid a global environment of rising rates. To finance its persistent deficits, the Japanese public sector depends on inexpensive domestic funding to invest in risky assets both domestically and internationally, effectively creating a sovereign wealth fund fueled by borrowed money. Ultimately, these risks fall on Japanese bondholders, depositors, and taxpayers. While the U.S. faces similar fiscal pressures, it is unlikely to adopt Japan’s approach.
https://doi.org/10.20955/wp.2025.023
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http://doi.org/10.20955/wp.2025.023
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Provider: Federal Reserve Bank of St. Louis
Part of Series: Working Papers
Publication Date: 2025-09-21
Number: 2025-023