IS DEBT/GDP RATIO A RELIABLE INDICATOR OF A COUNTRY’S ECONOMIC HEALTH?
Part 1: Why is Japan able to sustain a Debt/GDP Ratio of 260% without economic collapse or significant devaluation of the Yen? The reasons for Japan’s ability to sustain a Debt-to-GDP ratio of around 260% without triggering an economic collapse or a significant devaluation of the Japanese Yen (JPY) are complex but also instructive. It illustrates why a country’s Debt/GDP Ratio may not be a reliable indicator of its economic health. Below is a structured and concise explanation with supporting statistics. 1. Domestic Ownership of Government Debt Over 90% of Japan’s government debt is held domestically, mainly by: Bank of Japan (BoJ) – holding ~ 53% of all JGBs as of 2024. Japanese banks, insurance companies, and pension funds . Implication: Japan is less exposed to foreign capital flight or speculative attacks on its debt or currency, unlike emerging economies. 2. Monetary Sovereignty Japan issues debt...