1.000.000.000.000.000 Yen

img-japan-yen-september-2010

This piece is a somewhat lighthearted attempt at throwing light on a serious issue; Japan’s enormous government debt.

On the 9th of August 2013, the Ministry of Finance announced that Japan’s public sector debt exceeded one quadrillion Yen on June 30th. The debt stood at 1,0086 quadrillion Yen to be precise (or 10.46 trillion USD), which is more than the economies of the UK, Germany and France combined.

So how much is a quadrillion exactly? Well, one quadrillion is equal to one thousand trillion, which in turn is equal to one thousand billion, which in turn is equal to one thousand million. Below we present the numbers using zeros:

1.000.000 (Million)

1.000.000.000 (Billion)

1.000.000.000.000 (Trillion)

1.000.000.000.000.000 (Quadrillion)

So one quadrillion is equal to one million billion. Confused? These number can be tricky to get one’s head around, so allow us to attempt to illustrate:

Example #1:

The US government’s on-balance sheet debt is around 16 trillion USD (around 60% higher than that of Japan), but this is for an economy that is almost 3 times bigger than the Japanese economy.

Japan US GDP Debt

Worked out on a per capita basis, the average man, woman and child in Japan is theoretically significantly more indebted (through their government) than their US counterparts. The average citizen in the US is indebted to the tune of around $50.000 due to government debt, whereas the average citizen in Japan ‘owes’ around $80.000.

Japan US GDP Debt 2

This of course is in addition to any personal debt each individual may have built up.

Example #2:

The Bank of Japan helpfully has a picture on its website of a package containing 100 million Yen in 10.000 Yen notes. The package is 38cm by 32cm, about 10cm thick and it weighs about 10 kilograms.

1 million Yen

You would need to acquire 10 million of these packages to end up with a quadrillion. Stacked on top of each other, your quadrillion Yen ‘tower’ would reach a dizzying 1.000km into space and weigh in at 100.000 tons, or about the same as a herd of 14.000 African elephants.

Example #3:

Imagine a man standing in the middle of Tokyo handing out 1.000 Yen notes to people for 8 hours a day, every day of the week.

1000_yen_Natsume_Soseki

Assuming he hands someone a 1.000 Yen note every 5 seconds, it would take him 475.000 years to hand out one quadrillion Yen, or roughly the amount of time that has passed since the earliest Neanderthals roamed Europe:

neanderthal

What we have done here is to attempt to provide our readers with a grasp of the scale of the numbers involved in this ultimately very serious issue.

The debt burden in Japan is clearly enormous, and very obviously needs to be dealt with. The central government is already spending a quarter of its tax revenue just on paying the interest on its debt, and this is with very low interest rates. NipponMarketBlog has done the math on what will happen if and when interest rates start to rise, and it is truly frightening (see our piece here).

Shinzo Abe’s cabinet along with the BoJ’s Kuroda are attempting to turn the corner with its Abenomics program (see our piece here), but the challenge is very significant, and the jury is still very much out as to whether the attempt will prove successful in the long term.

On August 8th Prime Minister Abe ordered the creation of a panel of so-called experts to ‘analyze the impact on the economy of a higher consumption tax’, which is widely seen as the first step to help reduce the deficit which is currently running at around 10% of GDP.

However, NipponMarketBlog finds it interesting that two of the members of the panel will be Bank of Japan governor Kuroda and Finance Minister Aso, both of whom have obviously already expressed their support for the consumption tax being raised (See our piece here). One suspect that this panel of experts is being put together simply to rubber-stamp the government’s plan to raise the consumption tax, thus providing perceived expert backing for government policy in the eyes of the electorate.

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6 responses to “1.000.000.000.000.000 Yen”

  1. Christian Rasmussen says :

    mind staggering!!!!

  2. Carl A. PLickert says :

    Greetings: Question: After reading the information above where is all the money coming from for Japan, United States, etc, to borrow these large sums of money, and what is being used for collateral.

    • NipponMarketBlog says :

      Hello Carl.
      Governments borrow money by selling debt (bonds), which they then promise to pay back typically over either a 5, 10 or 30 year period. The buyers of this debt (and hence the entities funding the governments’ spending) are typically pension funds and other institutional investors.
      As for collateral – there is none. Or put more bluntly, the ‘collateral’ is the earnings (and thus taxes ) of future generations. That is the only thing that has the potential to guarantee the loans being repaid.
      However, what people tend to forget is that governments defaulting on debt has been a very regular occurrence throughout history. So government bonds, including JGBs, are not nearly as safe as most people like to think.

  3. Rodders says :

    Hi NMG,

    A brilliant blog, very clear about a problem that just isn’t getting enough attention.

    Here is an excellent video explaining virtually in layman’s terms why Japan is doomed:

    Perhaps you could write pieces highlighting three key facets of this issue:

    1) what might trigger the coming crisis
    2) what the implications are for the rest of the world (the carry trade etc)
    3) How does a private investor “play” or rather insulate themselves from the collapse. I’d have thought a good thing would be to buy an inverse JGB ETF (eg JGBD US, http://www.bloomberg.com/quote/JGBD:US). But any thoughts on the matter?

    If you don’t do so already, you should also track what the great Kyle Bass is up to (he’s been a long time Japan bear) .

    Keep up the great work!

    Guy

    • NipponMarketBlog says :

      Hello Guy,

      Thanks for your kind words.
      I am considering pieces on the issues you mentioned. Summing up my thought very briefly on your three points;
      I don’t think it will be possible to predict what a trigger might be. Markets are chaotic systems (in the original sense of the word), and so it will turn out to be a confluence of factors that suddenly pulls the rug from under the feet of investors who probably suspects the current situation is untenable, but are forced to play the game for a as long as the music is still playing. Where it starts and how it happens will probably only make sense after the fact.
      The effects will obviously be extremely wide ranging, in fact so much so that it will effectively be impossible for retail investors to insulate themselves. They might be able to partially insulate their financial assets (but it will be costly), but I suspect the real economic impact on the rest of the world will be more significant.
      I am familiar with Kyle Bass, and I think he is correct in most of his analysis, except his assertion that a default (and subsequent social dislocation) will eventually lead to a war. I am not quite that pessimistic…

      Best regards

      NMB

      • Rodders says :

        Hi NMB, agreed. I think market internals and technicals will give us the best possible signal ahead of time. In my experience crashes happen suddenly. You can sort of work out when we’re like Wiley Coyote and running through the air unsupported. When we actually fall is mostly not triggered by any particular factor; it just seems to “happen”. JGBs have gone over the cliff and are running through the air supported somehow by BoJ buying. But we all know a crash will happen soon. One analyst I regularly talk to thinks that JGB 10 yr futures have broken down from the bull market begun in 2008 and that they are currently tracing out the right shoulder of a head & shoulders pattern within a rising wedge, which of course is very bearish. In terms of “commonality” other yield instruments like EM debt, US high yield, junk etc are beginning to roll back over from their Jun-Jul rebound. Plus JGBs have been the best performing major fixed income YTD. 143.1-143.5 is the key support area; if we break down from this we could fall to 138 or beyond. I am short as of 142, so am obviously feeling pain right now, but don’t want to cover and take a loss, because of all these factors and the fundamentals you highlight. BEst

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