How Japanese MMT (Modern Monetary Theory) Deals With The Growth Of Public Debt to GDP ratio?

The Japanese public debt is estimated to be approximately 9.8 trillion US Dollars (1.29 quadrillion yen), or 263% of GDP, and is the highest of any developed nation. 43.3% of this debt is held by the Bank of Japan. However Japan Inflation Rate is at 3.30%, a low level in global comparision.

It's worth noting that Japan's high public debt is partly a result of its unique economic and demographic situation. Japan has an aging population and a low birth rate, which has led to a decline in the workforce and economic growth, this has led to a decline in consumption and a shift towards saving and investing, which has reduced aggregate demand and put downward pressure on prices (a deflationary pressure that occurs since the 90's). The government has implemented various policy measures, including monetary and fiscal stimulus to try to boost economic growth.

Despite its high level of public debt, Japan has maintained a relatively stable economic and financial situation. This is partly due to its status as a major global economy and the fact that much of its public debt is held domestically. However, the high level of public debt does pose some long-term challenges for the Japanese economy, including concerns about the sustainability of its fiscal situation and the potential impact on future generations.

When a government issues public debt, it can be purchased by domestic or foreign investors. If a large proportion of the debt is held by foreign investors, this can create risks and vulnerabilities for the country, such as exchange rate fluctuations and capital outflows in times of economic stress. On the other hand, if the majority of the debt is held domestically, this can provide more stability and reduce the risk of external shocks.

But How Does Their Economic Policy Views This Growing Public Debt To GDP Ratio?

MMT advocates generally do not see public debt in the same way as other schools of economics do. They argue that as long as the government is borrowing in its own currency, and the debt is held by domestic investors, the government can always pay off the debt through the creation of new money, a rollover on floating debt.

In MMT, the focus is less on the level of debt itself, but rather on the impact of government spendings and other economic indicators. MMT proponents argue that the government should be free to spend on programs that benefit society, such as healthcare, education, and infrastructure, without being constrained by concerns about the level of debt.

However, MMT does acknowledge that excessive government spending can lead to inflation, and that this can be a risk to the economy. In order to address this risk, MMT proponents suggest that the government should use fiscal policy to manage aggregate demand, such as by reducing spending or increasing taxes, rather than relying on interest rate adjustments.

In terms of credit risk, MMT argues that a government that issues its own currency and borrows in that currency is less vulnerable to default than a government that borrows in a foreign currency. This is because the government can always create more of its own currency to pay off its debts, as long as it is not constrained by external factors such as fixed exchange rates or a lack of access to foreign currencies.

Overall, MMT advocates argue that a government's ability to manage its debt and credit risk is ultimately tied to its ability to manage inflation and the economy as a whole, rather than simply through conventional measures of debt sustainability.