Japan's financial situation is among the worst in the world, and despite claims that national finances are different from household finances, experts are expressing concern.

Nihon.com recently conducted an interview with Koji Yano, former Vice Minister of Finance and a special visiting professor at Kanagawa University, and released an in-depth analysis of Japan's financial situation. Yano is known as a fiscal disciplinarian even within the Ministry of Finance, and he has not hesitated to criticize key figures in past administrations. In October 2021, he wrote an article in the monthly magazine Bungeishunjū, warning that "if the current situation continues, national finances will collapse." He criticized the policy debates taking place in the LDP presidential election and the House of Representatives election as "ばらまき合戦 (money-scattering competition)." He described Japan's finances as "like the Titanic heading towards an iceberg," emphasizing the financial crisis.

Yano likened Japan's finances to "the mouth of a crocodile," continuing his criticism of the half-century of fiscal deficits and the optimistic belief that "economic stimulus will increase tax revenue and improve finances." He pointed out that while social security spending is increasing by 800 billion yen annually amidst a declining population, tax revenue growth is slow due to the shrinking working-age population.

While acknowledging that large-scale disasters and the COVID-19 pandemic have contributed to the worsening finances, Yano emphasized the need to analyze the fundamental problems of finances from a long-term perspective, excluding these factors. He cited the example of Sontoku Ninomiya, an agricultural economist in the late Edo period, who analyzed the finances of 藩 (han) back to 100 years ago, despite multiple disasters and economic fluctuations.

Yano highlighted that Japan's national debt is ranked last among 180 countries in terms of its ratio to GDP, and it has been steadily increasing or showing minimal growth over the past 30 years.

In this situation, Yano argued that "the definition of the elderly needs to be reviewed," suggesting that the definition of "elderly" should be redefined and the social security system should be reconsidered. This is emerging as a hot topic of debate in Japanese society as a solution to the soaring social security costs that accompany the entry into an aging society.

Meanwhile, the NIRA (National Institute of Population and Social Security Research) analyzed in its report "人口減少下の日本経済と財政の長期展望―2060年の家計の姿を描く (Long-Term Outlook for the Japanese Economy and Finances in a Declining Population - Painting a Picture of Household Finances in 2060)" that the continued low growth of the Japanese economy and the expansion of social security spending due to aging are causing concerns about the future of the Japanese economy. Assuming that the government and the Bank of Japan maintain their current policies, NIRA predicts that national debt will continue to increase until 2060.

However, NIRA also presented a positive outlook.

NIRA analyzed that it is possible to achieve a primary balance surplus through a tax increase of 0.12% of GDP until 2060. This means that if every household were to share the burden equally each year, it is estimated that 勤労者世帯 (working-class households) would face an increase of 28,000 yen per month in 2060, while 高齢者世帯 (elderly households) would face an increase of 20,000 yen per month.

NIRA identified the following potential risks that Japan's finances could face: ①continued primary balance deficits, ②continued low interest rates below the growth rate, and ③interest rates exceeding the growth rate. In particular, for ③, they cited examples such as a return to low interest rates and deflation, or a decline in government bond credit ratings due to 稀少なイベント (rare events).

NIRA added that if the TFP (total factor productivity) growth rate were to increase by 0.5%, the total debt level in 2060 could be reduced by 19.3% of GDP.

Concerns about the sustainability of Japan's finances are growing, and the Japanese government faces a number of challenges, including the entry into an aging society, soaring social security costs, and increasing national debt, which need to be addressed in the future.