Japan Defies Conventional Wisdom on Debt and Inflation

Japan's inflation woes seem to contradict the conventional wisdom that debt causes inflation. The country has seen its currency, the yen, lose significant value over the past 15 years, with a dollar now buying nearly twice as many yen as it did back then.

Crude oil prices in yen terms have risen by around 70% this year alone, while food prices are also on the rise due to Japan's reliance on imports. The country pays for these imports in dollars, which have become increasingly expensive over time.

These factors would suggest that Japan is indeed facing an inflation problem. However, the narrative that government debt is a key driver of inflation does not hold up in this case. In fact, Japan's high government debt should be less inflationary than expected due to its large size and low interest rates.