Discussion Paper

The Rapidly Changing Nature of Japan’s Public Debt

Abstract: Japan’s general government debt-to-GDP ratio is the highest of advanced economies, due in part to increased spending on social services for an aging population and a level of nominal GDP that has not increased for two decades. The interest rate payments from taxpayers on this debt are moderated by income earned on government assets and by low interest rates. One might think that the Bank of Japan’s purchases of government bonds would further ease the burden on taxpayers, with interest payments to the Bank of Japan on its bond holdings rebated back to the government. Merging the balance sheets of the government and the Bank, however, shows that the asset purchase program alters the composition of public debt, with reserves in the banking system replacing government bonds, but not the amount of the debt taxpayers must pay interest on.

Keywords: Japan; government debt; deficits; borrowing; asset purchase programs; reserves; bonds; net income; central bank balance sheets;

JEL Classification: E5; H0;

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2016-06-22

Number: 20160622