If Japan Is Broke, How Is It Bailing Out Europe?

International Monetary Fund Managing Director Christine Lagarde:  a different view of Japanese government finances.

Not so long ago Japan was being portrayed as the deadbeat of the world financial system. Seems there is still some life — and money — in the island empire.
TOKYO. If you want to understand Japan, try watching what people do rather than listen to what they say. More even than in  other parts of the world there is a difference — and  what people do is, of course, a far more useful insight into their true situation. It is interesting therefore to note that as the International Monetary Fund wound down  its semi-annual meeting in Washington yesterday, the Japanese government emerged as by far the largest single non-eurozone contributor to the latest  euro rescue effort.  Yes, this is the same government that has been going round pretending to be bankrupt (or at least offering no serious rebuttal when benighted American and British commentators portray Japanese public finances as a trainwreck).

Japan is putting up $60 billion. That  is equal to 14 percent of the total of $430 billion in pledges drummed up by the  IMF’s overworked managing director Christine Lagarde.  By comparison the United Kingdom with almost half of Japan’s population is throwing in  a mere $15 billion, or one-quarter as much. And the U.K. actually looks generous by comparison with the United States and Canada, neither of which is prepared to proffer so much as a single brass cent. Besides Japan, the most significant contributors are Saudi Arabia and South Korea.

This is not the first time that Japan has stepped up to the plate as lender of last resort to the world financial system. At the height of the global panic in 2009, the Tokyo Ministry of Finance more or less single-handedly rescued this system when it injected $100 billion into the IMF.

How can a nation whose government is supposedly the most overborrowed in the advanced world afford such generosity? To say the least there seems to be a paradox here — but then paradoxes have always been a dime a dozen in the West’s understanding of the Japanese government.

The betting is that Japan’s true public finances are far stronger than the Western press has been led to believe. What is undeniable is that the Japanese Ministry of Finance is one of the most opaque  in the world — and rarely speaks fully frankly to the Japanese press, let alone the foreign press. Opaqueness is a big help in batting off domestic interest groups pressing for handouts. It also helps  in politely waving away third world nations seeking overseas development aid.

One technique for keeping outsiders at sixes and sevens is that the Japanese budget is announced every year on Christmas Day. That is, of course, the one day of the year when virtually all senior foreign correspondents can be guaranteed to be otherwise engaged.

Let’s be frank: outsiders have little or no ability to delve into Japan’s true government finances. Indeed many commentators who have been particularly outspoken in promoting the story of the Japanese government’s supposed bankruptcy cannot even read the Japanese language.
It is also questionable whether they can read a balance sheet.

Let’s note that a balance sheet has two sides. The Japanese government’s liabilities may be large. But it is important to take a look at its assets before resorting to extravagant denunciations of its financial policy. What is clear is that the Tokyo Finance Ministry is increasingly borrowing from the Japanese public not to finance out-of-control government spending at home but rather abroad. Besides stepping up to the plate to keep the IMF in business, Tokyo has long been the lender of last resort to  both the U.S.  and British governments. Meanwhile it borrows 10-year money at an interest rate of just 1.0 percent, the second lowest rate of any borrower in the world after the government of Switzerland.

Few Anglophone economic commentators are able to read the Japanese government’s accounts in the original. But the yields on JGBs, as Japanese government bonds are known to the cognoscenti,  are printed daily in the Western press. It is time the commentators took note.