The International Monetary Fund (IMF) has sounded the alarm for Japan, urging it to avoid debt expansion and to implement fiscal reconstruction.
In its latest fiscal report, released on the 15th, the IMF predicted that Japan’s government debt will reach 226.8% of GDP in 2026, significantly higher than the developed country average of 111.8%.
Despite Japan’s exceptionally high government debt, the Japanese government and its citizens show little sense of crisis. As debt expands, it puts upward pressure on long-term government bond yields. Rising long-term government bond yields drive down bond prices and increase borrowing costs (mortgages, corporate loans, etc.). This in turn drives down stock prices and increases the burden on businesses and households, ultimately leading to an economic recession.
Many in Japan appear to be believers in Modern Monetary Theory (MMT), which asserts that a government that can issue its own currency will not go bankrupt. However, MMT is controversial even among economists and is not an empirically proven theory. Even if there is no fiscal collapse, a loss of confidence in the currency will cause economic chaos and impair the lives of those living there.

Japan’s stock prices are currently high, with the exchange rate exceeding 50,000 yen within sight. Corporate performance is also generally strong.

While some are optimistic about the Japanese economy given this background, the situation was similar on the eve of the collapse of the bubble economy in 1990. At the time, many experts believed the Japanese economy had no blind spots and were confident that stock prices would continue to rise. However, the bubble burst soon after. Incidentally, the term “zaiteku” (financial investment) was also popular at the time. I sense a similar underlying theme to today’s NISA (Non-Financial Account).

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