Japan's Public Debt Management: New Developments

1. New issues of government bonds in large quantities: On the bond market, the period after 1975 has generally been characterized as one in which large quantities of government bonds were issued. Indeed, after 1975 "large quantities" of government bonds appeared on the bond market, judging from all indicators such as the amount issued, the government's dependence on bond finance, and the ratio of outstanding public debt to GNP. But it is necessary to ask what we really mean when we say that government bonds were issued in "large quantities." It is true that the issuings were unmistakably large with regard to the quantitative scale. However, this by itself is insufficient in determining whether the issuings were large or not. For example, the amount of government bonds issued after 1975 may not necessarily be large when compared with the balance between saving and investment. A look at the flow-of-funds table reveals that while the household sector continued to show a large surplus, the shortage in the corporate sector diminished relatively, and the increasing shortage in the public sector filled in the difference. Although the flow-of-funds table shows only the ex post balance, it may be said that government bonds issued after 1975 had been such as to supplement insufficient investment undertaken by the private sector. There was a concern that government bonds issued after 1975 might crowd out private investment, but so far, no such phenomenon seems to have occurred in full scale. Thus, the quantitative scale alone is insufficient in determining whether the issuance of goverment bonds was in a "large quantity."