Fight Against Big Government

The Japanese government continues to get bigger. Any further postponement of this issue will induce huge damage. We search for an antidote to this problem.

Food price hikes continued in September, centered on indispensable seasonings such as miso, soy sauce and dashi, as well as refrigerated and frozen foods and dried noodles.

Japan’s consumer price index in September rose three percent with a year-on-year comparison, the first increase in 31 years since Aug. 1991. This was driven by high oil prices following the Russia-Ukraine war and a weakening yen, combined with Japan’s heavy reliance on imports.

There has also been a spate of price-hike bankruptcies. Real wages are on a downward trend, which makes life even more difficult.


Unsustainable Spending Increase

Under these circumstances, the estimated budget request for FY24 was released at the end of August, which indicates how much each department of the government wants to spend on what projects. The submitted budget was 114 trillion yen, the largest ever, with several trillion more yen expected be added to the budget plan to be finalized at the end of the year.

In FY23, the government created 35 trillion yen, about 30 percent of their total expenditure, by issuing new government bonds to make up for the shortfall in revenue. It seems like next year will follow this trend, with the government relying on government bonds to increase spending. In short, tax revenues are too insufficient compared to their spendings. This is seen as “unsustainable” even by foreign countries (*1).


The Nightmare That Will Soon Haunt Japan

If things continue at this rate, some estimates suggest that Japan’s government debt will exceed 300% of the GDP by 2030. That is a future in which the Bank of Japan’s debt situation will be extremely bad.

Happy Science CEO and founder Master Ryuho Okawa stated that the Bank of Japan “does not have 700 trillion yen’s worth of gold (as assets). What they have are government bonds and stocks. These are the things they buy. They purchase these to procure funds, so if they turn into worthless pieces of paper, they’ll be ‘finished.’” When this happens, “Both the Bank of Japan and the Japanese government may come to an end,” he predicts.

In the near future, the Bank of Japan’s purchase of government bonds will be seen as “fiscal financing,” and the Japanese government bond prices will plummet as the market loses confidence in them. Then, the Bank of Japan, which holds over 576 trillion yen (78 percent of its total assets) in government bonds (*2), could become insolvent, and even though they are a central bank, they could be forced into bankruptcy. At the same time, the yen could sell off at an accelerating pace in the foreign exchange market, causing the yen to plummet.

Against this backdrop, at the end of Oct. 2022, the government approved a cabinet decision to implement measures to combat high prices, with an economic stimulus package totaling 39 trillion yen, and a project scale of 71.6 trillion yen. Furthermore, the government continues to spend all over, providing aid to Ukraine and doubling its budget for children.

The far-left policies of the Biden Democratic Party are followed effortlessly by the Kishida administration, which calls for a “virtuous cycle of growth and distribution.” In the U.S., there has been decisive criticism of the democratic administration which has expanded government debt, but no such voices are raised in Japan.

Japan’s government debt is among the worst in developed countries. Despite this, both the ruling and opposition parties are taking a profligate fiscal course with no sense of crisis. Hayek states that even on the Nazi ascension, the left and right extremes were coming together in terms of economic policy. In other words, the Kishida administration policies are comparable to that during the eve of Hitler’s appearance, and Japan is on the verge of becoming a National Socialist nation.

(*1) The Economist, Nov. 5, 2022, “Japan’s bond-market peg could snap”
(*2) As of the end of 2022.
Fight Against Big Government
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