Japan’s staggering national debt has hit a new milestone: one quadrillion yen (or 1,000,000,000,000,000 yen).
On Friday, the government announced that as of June 30, Japan’s outstanding debt was a little over one quadrillion yen. The equivalent of 1,000 trillion yen, Bloomberg Businessweek pointed out that the term “quadrillion” is not often used.
According to Bloomberg News, one quadrillion yen equals 10.46 trillion U.S. dollars. Based on the figures collected by the Australian Government and International Monetary Fund, the ten-nation Association of Southeast Asian Nations’ (ASEAN) aggregate GDP, in purchasing parity power terms, stood at about US$3.6 trillion in 2012. That means that Japan’s national debt is just less than three times the size of ASEAN’s entire GDP.
To be fair, Japan’s public debt is also about twice as large as its own GDP. Still, ASEAN consists of ten separate nations, some of which are quite prosperous. ASEAN’s population of about 615.6 million people is also around five times the size of Japan’s 127.5 million citizens.
All of this means that Shinzo Abe, who now has control over both houses of parliament, will face tough choices in the months ahead. The first of these is expected next month when the increased sales tax is expected to be take hold.
In August of last year, under Abe’s predecessor, Yoshihiko Noda, Japan’s Diet passed a contentious bill that called for increasing the country’s sale tax from the current 5 percent to 8 percent in April 2014 and 10 percent in October 2015. The bill did include a provision that would allow the prime minister to delay the tax increase if he judged it would be an excessive burden on the economy.
Abe has convened a panel of experts to assess how badly the tax increase would impact economic growth. A decision is expected next month.
In the meantime, Japan’s fiscal difficulties will continue to mount. Bloomberg has forecasted that even with the tax hike Japan will run a fiscal deficit of more than 10 percent of GDP this year, an increase over last year.
Meanwhile, Japan’s Cabinet Office released a report this week that predicted that the Abe administration is unlikely to reach its deficit reduction benchmarks in the years ahead, even if the tax hikes are implemented according to the timetable outlined in the bill from last year.
Abe’s administration has pledged to cut the primary balance deficit in half by fiscal year 2015, from the 6.6 percent deficit (in relation to GDP) that Japan posted in 2010. It also pledged to have Japan running a primary balance surplus by the fiscal year beginning in 2020.
According to the Cabinet Office report, if the consumption tax hikes are implemented Japan will only reach the first goal of a 3.3 percent deficit ratio by 2015 if it posts 3 percent nominal growth rates for the next decade. By 2020, Tokyo would still have a deficit of 2 percent under this growth scenario; not a surplus.
If Japan’s economy only grows by an average of 2 percent annually over the next decade, it’s primary account deficit will only be 3.5 percent of GDP by 2015, the Cabinet Office report said.
The government did endorse 4 trillion yen (US$41.5 billion) in spending cuts each year for the next two years on Thursday.
Earlier in the week, on Monday the International Monetary Fund released its annual report on Japan’s economy, which called on Tokyo to devise a credible mid-term plan for fiscal and structural reform.
Zachary Keck is an assistant editor of The Diplomat.