Japanese Prime Minister Shigeru Ishiba has said that his country's fiscal condition is worse than that of Greece. The comment was made during a recent address, where Ishiba pointed to the country¡¯s rising debt-to-GDP ratio, which now exceeds 260%, along with a shrinking population and low birth rates, as indicators of serious economic strain. While his statement underscores growing concerns over Japan¡¯s fiscal health, economists state that the structure of Japan¡¯s economy differs significantly from Greece¡¯s, making direct comparisons complex.
The Prime Ministrer has also has made it clear that his government will not introduce tax cuts backed by new debt, even as political pressure mounts ahead of the upper house election in July. Speaking in parliament on Monday, Ishiba cited concerns over rising interest rates and Japan's already heavy debt burden. He also pointed to increasing social welfare costs, which continue to put strain on public finances despite improved tax revenues.
Prime Minister Ishiba noted that interest rates in Japan are beginning to turn positive, marking a shift in the country¡¯s financial landscape. ¡°Japan is seeing interest rates turn positive and its fiscal state is not good,¡± he said. He highlighted that as borrowing costs increase, the government must be cautious about adding further debt to finance tax reductions. Ishiba underlined the rising cost of servicing Japan¡¯s large public debt, which limits flexibility in fiscal policy.
Despite calls from both ruling and opposition lawmakers to cut the current 10% consumption tax to stimulate demand, Ishiba remains cautious. He acknowledged that although tax collections are on the rise, the increase in social welfare expenses poses an additional challenge. Sticky food inflation has continued to affect consumer spending, and uncertainties surrounding U.S. tariffs have further clouded Japan¡¯s economic outlook. Ishiba¡¯s decision to maintain the current tax rate comes amid appeals to boost public spending in a bid to support households and revive consumption.
Finance Minister Katsunobu Kato supported Ishiba¡¯s cautious approach, stressing the importance of maintaining investor confidence. ¡°A loss of market trust in our finances could lead to sharp rises in interest rates, a weak yen and excessive inflation that would have a severe impact on the economy,¡± Kato said in the same parliamentary session. Following the end of a decade-long stimulus program, the Bank of Japan raised short-term interest rates to 0.5% in January and signaled that further hikes are possible if inflation stays near the 2% target. The BOJ has also been reducing its bond purchases, which is expected to push up bond yields and increase the cost of government borrowing.
Super-long Japanese government bond yields have been climbing since April, even as shorter-term yields remain steady. This trend suggests market concerns over the long-term sustainability of Japan¡¯s fiscal position. In the January to March quarter, Japan¡¯s economy contracted at an annualised rate of 0.7%, its first decline in a year, reflecting the fragile nature of its post-pandemic recovery and the pressure from international trade tensions.
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