Uncle Sam’s biggest creditor faces a fiscal crisis ‘worse than Greece’ as its borrowing costs hit 20-year high

[Pelican Press 0]

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Uncle Sam’s biggest creditor faces a fiscal crisis ‘worse than Greece’ as its borrowing costs hit 20-year high

Japan’s prime minister warned members of parliament the country cannot afford any tax cuts funded through the issue of new debt as calls grow for stimulus ahead of July elections to the upper house. The country holds $1.13 trillion in U.S. Treasury debt, even as its own debt-to-GDP ratio runs at roughly 250%.

Japan, the single largest foreign financier of the U.S. federal government, faces its own mountain of debt just as its economy is beginning to shrink.

Prime Minister Shigeru Ishiba, elected last year as a fiscal hawk, has been facing calls for fresh stimulus ahead of an election for the upper house of parliament in July. On Monday, he warned MPs that Japan could not afford any tax cuts paid for with more borrowing.

“Our country’s fiscal situation is undoubtedly extremely poor,” he said, “worse than Greece’s.”

Outstanding debt already exceeds the size of its gross domestic product by nearly 2.5 times. The lower the denominator—in this case the economy—the greater the ratio and the less sustainable a nation’s debt burden becomes, experts say.

Unfortunately for Japan, it just reported last week that GDP

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in the past quarter, with investors arguing a recession is a concrete risk. On Monday, the cost of borrowing rose after yields on its 40-year bond hit highs not seen in

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.

Greece famously sparked the euro zone sovereign debt crisis

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even though its debt-to-GDP ratio was

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. Importantly, however, eight out of 10 euros in debt Greece had issued was owed to foreign bondholders who had no skin in the game and could move their capital elsewhere instantly. (Hedge fund legend Paul Tudor Jones once described this type of scenario as money with “

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”.) By contrast, Japan has been able to issue debt by tapping into its citizens’ own propensity to save.

Ishiba’s statements on Monday come as a group of U.S. House lawmakers allowed President Trump’s “big, beautiful bill” to leave committee and

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. Expected to permanently extend President Donald Trump’s 2017 signature tax cut, which is due to sunset at the end of this year, the loss of revenue to the Treasury would add trillions to the budget deficit.

The bill advanced after Moody’s stripped the U.S. of its perfect AAA credit rating, citing the worsening fiscal

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. The downgrade sparked an across-the-board selloff in government debt, with the U.S. 30-year yield

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above 5%, close to its 5.18% multi-decade high from 2007.

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The most voracious foreign buyer of Treasury bonds is the heavily indebted Japan itself. The latest

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show that Japan’s holdings ticked higher to $1.13 trillion in March—roughly a quarter of its GDP—making it easily the

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in the United States government.

Ishiba became prime minister by pitching himself as a hawk aiming to curb the excesses of “Abenomics,” a government policy of coordinated monetary and fiscal stimulus. Named after Shinzo Abe, Japan’s longest serving prime minister, it involved the Bank of Japan expanding its balance sheet to buy government debt and

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.

His election last September briefly sent stocks in Tokyo reeling amid what economists called the “

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”. At the time, markets had expected an ally of Abe, assassinated three years ago, to ascend to the post and maintain his course.

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