Differences Between Greece and Japan: Japan Borrows in a Currency It Prints

June 02, 2016

In an article on the decision by Japan’s Prime Minister, Shinzo Abe, to delay a long scheduled increase in its sales tax, the NYT told readers:

“Its [Japan’s] debt may be large, but it is almost entirely funded by domestic savers, making a crisis like the one in Greece much less likely.”

While it is true that most Japanese debt is held domestically, an even more important difference is that Japan’s debt is almost entirely in yen. This means that Japan can never be in the situation Greece faced where it was unable to meet payments on its debt. Japan could always print the money to pay the bonds. Greece could not, since it is not allowed to print euros.

There is a risk that printing large amounts of yen would lead to inflation, but that is a very difference situation that the one Greece faces. Also, the idea that Japan will face a risk of excessive inflation at any point in the near future does not seem very plausible.

 

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