There has been no shortage of concern regarding the massive amount of public debt that Japan is accumulating. But should there be? In my humble opinion the answer is no.
For the past 15 years at least Japan has been stuck in a debilitating cycle of deflation, continuous stimulus attempts and debt accumulation as a result. What is perplexing to me is why one of the few countries that could benefit from printing money does not do so.
The country has massive foreign reserves (over 1 trillion USF), runs a current account and trade surplus, has spare industrial capacity, some of the lowest interest rates on the planet, and most of its government debt is held in Japan. Oh, and it is running a large budge deficit and has been in a deflationary cycle for years now.
Of all the countries I can think of, Japan is best suited to start printing Yen. In this case a little inflation would go a long way to solving some of its problems.
First, it would reduce the the amount of government debt outstanding. For a country that spends almost 40% of its annual budget on interest payments, even at the low interest rates it obtains in the market, it would seem to me to be a good way to reduce that bill.
Second, it would devalue the currency and either force Japanese interest rates up or in the absence of that it would increase exports. Maybe both would happen. If Japan was smart and it paid down the short term debt first the increase in interest rates might not hurt it so bad. And the additional foreign reserves from increased exports could be used to buy back Yen lending a base to the currency.
Third, maybe putting some cash into domestic bondholders' hands might force them to start looking to invest that money in projects that increase their rate of return and start growing their economy.
Finally, by printing Yen Japan could start to solve its foreign reserve problem which is a problem of riches. As the Yen appreciates the value of its USF foreign reserves falls. So why not depreciate your home currency by printing Yen and then sell your USF foreign reserves in the open market for a better rate and buy your home currency? There are too many people sitting on USF foreign reserves and one day when everyone figures out what a basket case financially that country is there may be a rush to the exits.
I am sure there is much more to all of this. Some complications that would preclude using basic economics to help solve the ridiculous cycle that Japan has been stuck in for many many years. Maybe it is time to try something different to get a different result.