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Japan's national debt exceeded 1,000 trillion yen for the first time, underscoring the case for Prime Minister Shinzo Abe to proceed with a sales-tax increase to shore up government finances.
The country's outstanding public debt including borrowings reached a record 1,008.6 trillion yen ($10.46 trillion) as of June 30, up 1.7 per cent from three months earlier, the finance ministry said in Tokyo on Friday. Larger than the economies of Germany, France and the UK combined, the amount includes 830.5 trillion yen in government bonds.
The world's heaviest debt burden will weigh on Abe when he decides next month whether to implement a two-step plan to double the tax on consumers in a nation with ballooning welfare costs. While boosting the levy would drag on growth, Moody's Investors Service on Thursday warned that a worsening of finances would erode confidence in government bonds.
"Ballooning public debt underlines the need for Abe to push for a sales-tax increase," said Long Hanhua Wang, an economist at Royal Bank of Scotland Group Plc in Tokyo. "This is a minimum policy requirement for his government."
The levy on consumption is due to be raised to eight per cent in April from the current five per cent, followed by an increase to 10 per cent in October 2015. Abe said he would make a final call on the plan after the release of revised second-quarter gross domestic product data on September 9. The sales-tax law enacted last year gives Abe the power to postpone the rise should he conclude that the economy is unable to weather the austerity measure.
Expert panel
The prime minister on Thursday ordered the creation of a panel of experts to analyse the impact on the economy of a higher levy. Advocates of an increase including Bank of Japan Governor Haruhiko Kuroda and Finance Minister Taro Aso will stand in the committee.
Etsuro Honda, an economic adviser to Abe, called this week for a shallower path of increases to ease the burden on households. Another adviser, retired Yale University professor Koichi Hamada, said the BOJ should be prepared to add stimulus if the sales-tax rise hurts the economy.
The country's debt is more than twice the size of the economy, and its fiscal deficit will expand to 10.3 per cent of GDP this year from 9.9 per cent in 2012, according to OECD data compiled by Bloomberg. Japan will still run a primary budget balance deficit equivalent to two per cent of the economy in the fiscal year starting April 2020 even if it raises the tax as planned, a Cabinet Office estimate showed on Thursday.
