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9 - The Crisis That Wasn’t

How Japan Has Avoided a Bond Market Panic

from Part III - Macroeconomic Policy

Published online by Cambridge University Press:  05 February 2021

By
Mark Bamba  and
David E. Weinstein
Edited by
Takeo Hoshi  and
Phillip Y. Lipscy
Takeo Hoshi
Affiliation:
University of Tokyo
Phillip Y. Lipscy
Affiliation:
University of Toronto
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Summary

This chapter explores the history of Japanese fiscal policy over the past two decades with the aim of better understanding where previous forecasts have erred. Japan provides an important case study of how a country facing intense fiscal pressures can avoid a hyperinflation or financial panic. We find that there were three key forces that likely improved Japan’s fiscal situation relative to more pessimistic predictions. First, the Japanese government has shown remarkable ability to hold down per capita expenditures on social pensions and healthcare. Second, the Japanese government has been able to raise taxes substantially. Third, the remarkable monetary policy pursued by the Bank of Japan has resulted in a dramatic decline in the amount of government bonds held by the private sector.

Keywords

fiscal policypublic financegovernment bondsfiscal sustainability
Type
Chapter
Information
The Political Economy of the Abe Government and Abenomics Reforms , pp. 239 - 268
Publisher: Cambridge University Press
Print publication year: 2021

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