I have discussed various indicators so far, but money (specifically the Yen) boils down to this: while it is “extremely precious to anyone other than the government,” for the government, it is “nothing more than a digital number on a screen that can be created at zero cost.” It is fundamentally different from foreign currencies like the US Dollar, which Japan cannot produce at will, or gold coins, which have high material costs.
To procure Yen, the process is simple: the government issues bonds, and the Bank of Japan (BoJ) buys them. By maintaining a policy accord that allows the BoJ to effectively roll over these bonds indefinitely, principal repayment never occurs. Furthermore, the interest paid to the BoJ returns to the national treasury as “non-tax revenue,” meaning interest payments effectively don’t exist either. Bonds are issued via a keyboard; the BoJ purchases them via a keyboard. Money can be procured in any amount at zero cost. Information like “government debt per capita,” “debt-to-GDP ratio,” or “the percentage of the budget funded by debt” is, frankly, information of very little importance.
The Real Constraint: Supply, Not Money
While it is physically possible to issue bonds infinitely, it is impossible in practice. This is because supply will eventually fail to keep up with the demand fueled by an increasing money supply. Generally, people point to labor shortages as the bottleneck—the idea being that if there aren’t enough workers, injecting money only raises nominal wages without increasing production.
But is Japan’s labor shortage truly that dire? As of the latest available data (February 2025 preliminary figures), real wages are still negative. Moreover, after decades of low growth, there must still be massive room to increase labor productivity through public and capital investment. Investment should have increased naturally, but the market was distorted by government policies focused solely on increasing labor supply (e.g., promoting more women, elderly, and foreign workers)—which are, in effect, wage-suppression policies. In a true market economy, if wages rise, the labor supply increases naturally without the need for forced policy interventions.
The “Exit Strategy”: Imports and Foreign Assets
While domestic supply constraints due to labor shortages are important, there is a “loophole”: the importation of goods and services. Unless demand increases at an impossibly frantic pace, imports can provide an almost infinite supply.
The true limiting factor is foreign currency. If a nation runs out of foreign reserves, its domestic currency will eventually collapse, leading to hyperinflation. As a former watcher of emerging markets, this point is clear to me. It is common knowledge that the Thai Baht, which triggered the Asian Financial Crisis, began to be sold off in 1996 despite Thailand having a fiscal surplus and very little government debt. No matter how “healthy” your domestic finances are, you are helpless if you run out of foreign currency.
Now, look at Japan. As of this writing, Japan remains the world’s largest net creditor nation (though some say we might slip to second place). Our current account surplus is substantial. There is absolutely no reason to hesitate in issuing government bonds.
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