Japan’s Debt, Now Twice the Size of Its Economy, Forces Hard Choices

Japan, which has the highest government debt among leading economies, is finding it difficult to spend like it used to.

Debt-fueled public spending, enabled by low interest rates, has long been a way to address the country’s problems. Struggling farmers and emptying countrysides received generous payments from the central government. Relief aid during the Covid-19 pandemic morphed into new outlays for defense and subsidies to help consumers weather inflation.

The spending continued even as more social security funding was needed for Japan’s growing number of seniors. Government debt has ballooned to nearly $9 trillion — more than double the size of the economy.

Now, ahead of a heavily contested summer election, Japan’s ruling party is facing pressure to add even more debt. Small businesses hurting from U.S. tariffs are calling for government aid, and households squeezed by rising prices are demanding a rollback in taxes.

But as the Bank of Japan moves away from the negative interest rates that for years made it easy for the government to borrow, the limits on spending are more stark.

Recently, the market for Japanese government bonds has reflected concern about the country’s fiscal health. The yields on long-term bonds, an indication of investor confidence in the government’s ability to pay back its debts, rose to record highs at one point last week. And weaker-than-expected demand for an auction of 40-year bonds on Wednesday kept investors on edge.