||A Fiscal Perspective on the Sustainability of Japanese Government Debt
15-022015-04 , GRIPS Policy Research Center
Japan’s outstanding debt keeps increasing and there are concerns regarding its sustainability. Nevertheless, the financial market seems to be neglecting such concern. Its growing debt level and subdued general price level are not easy to explain from the fiscal theory of price level (FTPL) either. Thus, Japan has been a “puzzle” for many. This puzzle can be better understood with extended definition of government and its debt. If Fiscal Investment and Loan Program (FILP) agencies are included in the definition of “government”, Japan was running surpluses for several years since 2000, implied by the change in the real value of the government’s total debt including loans owed to the private sector. This paper introduces the new measurement scheme for the fiscal state of Japan and its implication on FTPL calculations to analyze the puzzle and to address the debt sustainability issue of Japan through FTPL perspectives on “Abenomics”.