The Monetisation of Japan's Government Debt

21 Pages Posted: 20 Sep 2007

See all articles by David E. Lebow

David E. Lebow

Board of Governors of the Federal Reserve System

Date Written: September 2004


Japan's government debt is extremely high, especially considering the fact that the data exclude likely future liabilities stemming from an ageing population and possible requirements of the financial system. Nevertheless, an offsetting factor is the degree to which the Bank of Japan has already monetised the debt. The monetary expansion up to the end of 2003 has increased the net worth of the Bank of Japan, properly measured, to more than 17% of GDP, directly reducing the debt position of the consolidated government and central bank - the most relevant measure of the government's fiscal position. Furthermore, the consolidated debt ratio could fall further depending both on the degree to which the monetary expansion is reversed to prevent inflation from rising too much and on the response of nominal interest rates to any temporary inflation that does occur. Under reasonable scenarios, the consolidated government/central bank debt position could be noticeably lower than indicated by commonly cited debt statistics.

Suggested Citation

Lebow, David E., The Monetisation of Japan's Government Debt (September 2004). BIS Working Paper No. 161, Available at SSRN: or

David E. Lebow (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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