Over the next few years, it will become obvious that the Bank of Japan (BOJ) has monetized several trillion dollars of government debt. The orthodox fear is that printing money to fund fiscal deficits inevitably leads to dangerous inflation. The result in Japan probably will be a small up-tick in inflation and growth. And the financial markets’ most likely reaction will be a simple yawn.
Japanese government debt now stands at more than 230 percent of GDP, and at about 140 percent even after deducting holdings by various government-related entities, such as the social-security fund. This debt mountain is the inevitable result of the large fiscal deficits that Japan has run since 1990. And it is debt that will never be “repaid” in the normal sense of the word.
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