Japan: The Place Where MMT Meets Its End

Japan’s Debt and the MMT Debate

During the COVID-19 pandemic, the United States and other developed nations implemented large-scale fiscal stimulus measures. At that time, Japan was frequently cited as a key example. The prevailing argument suggested that if Japan could manage its substantial national debt without major issues, then other countries could also pursue aggressive fiscal policies with minimal risk.

This perspective was particularly embraced by supporters of Modern Monetary Theory (MMT), who argue that countries with control over their own currency can borrow extensively as long as inflation remains subdued.

However, in recent years, Japan’s situation has become increasingly problematic for advocates of MMT. Government bond yields in Japan have climbed to levels not seen before, raising new concerns about the long-term sustainability of such fiscal strategies.