Japan's giant economy in peril
Massive accumulation of debt is threatening to take down the world's second biggest economy.
Last Modified: 30 Jul 2010 06:55 GMT

Japan, the world's second biggest economy, has racked up debt totalling $9.4t while its gross domestic product (GDP) is only $5t, making its debt to GDP ratio 181 per cent - the highest among rich countries.

Too much debt could render a country's bond worthless and impact economic growth.

A recent example of a country that has faced a troubled economy due to its massive accumulation of debt is Greece.  

But Tomohiko Taniguchi, a professor at Keio University in Japan's capital Tokyo, told Al Jazeera the difference between Japan's economic situation and Greece's is that "Japan's government debt has been almost exclusively purchased by domestic investors. Unlike Greece, the Japanese are indebted not significantly to the outside world".

"It is more sustainable than the case of Greece, but you have to boost demand, you have to grow. The Japanese government has to make not baby steps but a significant leap," he said.

"And most importantly, the Japanese government has to convince the Japanese domestic investors as well as the international market about the long term projection of the economy, the long term blueprint as to what the  government will do to tackle both the lack of demand and ballooning budget deficit."

Naoto Kan, Japan's prime minister, has suggested an increase in sales taxes to combat the economic problem.

But Taniguchi said: "I think it's more important that the Japanese administration proposes to reduce corporate tax first rather than increase the general sales tax because corporate tax in Japan is among the highest among other developed nations.

"In order to boost Japanese domestic demand and corporate investment, the corporate tax rate has to be reduced first."       

Al Jazeera's Divya Gopalan reports from Tokyo.

Al Jazeera
Topics in this article
Featured on Al Jazeera
'Justice for All' demonstrations swell across the US over the deaths of African Americans in police encounters.
Six former Guantanamo detainees are now free in Uruguay with some hailing the decision to grant them asylum.
Disproportionately high number of Aboriginal people in prison highlights inequality and marginalisation, critics say.
Nearly half of Canadians have suffered inappropriate advances on the job - and the political arena is no exception.
Women's rights activists are demanding change after Hanna Lalango, 16, was gang-raped on a bus and left for dead.
Buried in Sweden's northern forest, Sorsele has welcomed many unaccompanied kids who help stabilise a town exodus.
A look at the changing face of North Korea, three years after the death of 'Dear Leader'.
While some fear a Muslim backlash after café killings, solidarity instead appears to be the order of the day.
Victims spared by the deadly disease are reporting blindness and other unexpected post-Ebola health issues.