Japanization: What the World Can Learn from Japan's Lost Decades

Chapter 3The 1,000,000,000,000,000 Yen MonsterWhen a Debt Market Becomes So Big It Dominates Everything

Is Japan’s central bank creating the biggest pyramid scheme in world history? It’s a valid question as Governor Haruhiko Kuroda endeavors to do what monetary scientists from Milton Friedman to Anna Schwartz to Robert Mundell would surely say is impossible: creating inflation and sending stocks soaring, while also keeping bond yields below 1 percent, or at the very worst, 2 percent. Negligible borrowing costs is the only way a nation with an aging and shrinking population can service such a massive debt without becoming the next Greece or Argentina.

In August 2013, Japan’s debt reached a dubious milestone: the 1 quadrillion mark, or 1,000,000,000,000,000 yen. That markets hardly noticed is a testament not only to Kuroda’s skill as a policy maker, but to his gravitas. It’s a balancing act that few could conceivably pull off, and a reminder that Abe chose well when filling the top job at the BOJ.

My favorite Kuroda moment was on a Tokyo-bound flight on March 13, 2011, two days after a gigantic earthquake and tsunami struck northeast Japan. I was in the Philippines when the quake hit and precipitated a nuclear crisis. On the first available flight back, the then-president of the Manila-based Asian Development Bank (ADB) sat near me on an almost-empty Japan Airlines plane. Manila-to-Tokyo flights are rarely made with a single empty seat, but no one likes to fly into a potential ...