Japan's fiscal health is worrying both at home and abroad.
The country of the rising sun has been clinging to an ultra-expansionary monetary policy for two decades to raise inflation that had remained at a minimum for years, until the increase in costs accelerated by the war in Ukraine stopped that trend dead.
The Bank of Japan (BoJ, for its acronym in English) resists as the last bastion of the big central banks to maintain an ultra-lax strategy with interest rates, despite the galloping inflation, which in December reached 4%, its highest value since 1981. Despite the growing pressure from investors to receive greater incentives, and from those who ask for measures to contain the rise in prices, the BoJ remains, for the moment, reluctant to close the stage of rates close to 0 %.
Japan, which imports most of the resources and food it consumes, has been suffering from great inflationary pressure caused by the increase in the costs of raw materials and fuel, as well as by the strong depreciation of the yen.
In September, the Japanese currency sank to its lowest minimum against the dollar in 24 years, forcing the Executive to intervene for the first time since 1998. Although the authorities consider that the inflationary wave is temporary and a reflection of what is happening in the rest In the world, the consumer price index increases month by month.
Tokyo's CPI rose 4.3% year-on-year in January, setting a four-decade high and doubling the target set in 2013 by the central bank to maintain price stability.
The bursting of the Japanese real estate and stock market bubble in the 1990s caused a slowdown in the then second world economic power and a drop in prices that reached deflationary records.
With the aim of reversing this trend, the central bank has been progressively adopting measures such as applying official interest rates of 0% and introducing a quantitative easing strategy to broaden the monetary base through the purchase of assets.
In 2013, Japan embarked on an even more ambitious monetary and fiscal stimulus experiment through the purchase of a very high volume of public and private assets that have come to place the BoJ balance sheet in 2022 at around 130% of domestic product. gross (GDP).
“The economic policies pursued during Shinzo Abe's second term were based on the assumption that deflation was the main reason for Japan's economic stagnation.
Therefore, if the central bank implemented an ultra-loose policy and set the inflation target at 2%, the yen would depreciate and the economy would recover," says Kato Izuru, chief economist at market research firm Totan Research.
“Fearing that the very low yield on 10-year sovereign debt was distorting the financial market, the BoJ in December widened the maximum band in which it allows its yield to fluctuate from 0.25% to 0.5%,” he adds.
The Japanese government has been favored for years by returns on these securities around 0%,
purchase of bonds
Many investors believe the BoJ will be forced to adjust, or even unwind, its ultra-easy monetary policy, as they feel it cannot sustain the massive volume of bond buying required to defend that cap.
Despite mounting pressures, that turnaround does not look set to happen before spring.
The governor of the central bank, Haruhiko Kuroda, one of the main defenders of the strategy, reiterated on Monday before Parliament that the national economy is not ready to absorb a rise in rates and stressed the importance of promoting a virtuous circle in which prices and wages grow at similar rates.
Kuroda will chair his last BoJ meeting on March 9-10, before his ten-year term ends on April 8.
“It is not easy to change direction when unconventional monetary policies have been maintained for a long time, because they create a debt trap that is difficult to escape from,” Izuru considers.
And it is that Japan has made an effort for years to raise inflation at a high cost: its leverage ratio over GDP is the highest among the G-7 countries (the Group of the seven most developed nations), standing at 264 % in 2022, according to the International Monetary Fund (IMF).
More than half of Japan's public debt is held by its central bank.
Although the BoJ functions as an independent institution, its monetary policy has been closely integrated with the government's fiscal policy in the last decade, a fact that worries analysts quoted by the Asahi Shimbun newspaper.
The increase in the participation of this institution in the purchase of government bonds has gone from 11.48% in 2013 to the current 50.26%.
From the Ministry of Finance it is estimated that each increase of one percentage point in interest rates would boost the cost of debt by 3.7 trillion yen (26,129 million euros).
Due to its huge reliance on loans and the record budgets of the Fumio Kishida Administration, Japan's debt will exceed 1.1 trillion yen (7.7 trillion euros) for the first time in March 2027, according to the most recent estimates.
Last week, during its round of annual consultations with Japan, the IMF urged the Executive to "compensate the increase in expenses with an increase in income."
The balance of payments, one of the unfinished business of all Japanese governments, deteriorated sharply in 2020, as a result of repeated fiscal stimulus packages approved to deal with the coronavirus.
Japan has lagged behind other powers in recovering from the height of the pandemic.
The IMF improved its growth forecasts for the world's third largest economy in 2023 on Monday, even if they are only two tenths, to 1.8%, a four-point rise compared to 2022.