Japan's finances at risk of collapse

Morgan Stanley's Robert Feldman recently warned that Japan's government faces a possible crisis. From Bloomberg.

The Japanese government has two to three years to curb expenditures or face a possible crisis, according to Robert Feldman, the head of Japan economic research at Morgan Stanley MUFG Securities Co...

“There’s the risk interest payments would swell should the government fail to cut budget deficits when inflation and yields grind higher,” Feldman said in an interview in Tokyo on Jan. 8. “Absent an increase in tax revenues stemming from a tangible improvement in the real economy, there is a risk of collapse.”

Indeed, a paper by Charles Yuji Horioka, Takaaki Nomoto and Akiko Terada-Hagiwara on Tuesday also warned that the Japanese government faces increasing pressures to reduce its debt-to-GDP ratio.

Japan’s massive government debt has not wreaked havoc in the past because of robust domestic saving, especially household saving (and, in more recent years, corporate saving) and a temporary inflow of foreign capital caused by the Global Financial Crisis, but it may wreak havoc in the future as both of these factors become less applicable unless the government debt-to-GDP ratio can be brought under control quickly.