Yen Intervention Masks Japan's Debt Monster

Japan's recent intervention in the yen market has brought attention to the country's economic struggles and the risks of monetary experiments. According to a Bank of Japan (BoJ) central banker, two former governors were assassinated after leaving office due to their controversial monetary policies during the 1930s.

The current government's desire for stability may be creating long-term dangers, particularly with Japan's eye-popping debt burden at over 200% of its GDP. The BoJ has been trying to normalize policy by shrinking its balance sheet and raising interest rates from zero to 1%, but this has not stopped the yen from sliding.

The government is hesitant to raise interest rates further, fearing it would increase debt-servicing costs, which are already projected to be a third of outlays in three years. A recent memo from the Japanese Ministry of Finance highlights this concern.

Economist Robin Brooks suggests that Japan should sell its vast pile of assets to cut gross debt and stabilize the yen, but the current government seems resistant to this idea.