A crisis from Japan

04 June 2025 ESCI Group

A CRISIS FROM JAPAN

A weakened Japanese economy

What if a crisis were to originate in Japan? A crisis that would have repercussions, first on theU.S. economy, then on the rest of the world, since Mr. Trump's dream of deglobalization is still a long way off. Let's explain.

We know that Japan is the world's fourth largest economy, behind Germany. We also know that its debt stands at 250% of GDP: an extravagant figure, but, it should be pointed out, a debt 92% of which is held by the Japanese themselves, which is very different, for example, from the French debt, which is mainly held by foreign creditors. Finally, we know that Japan's population is steadily declining, which means it is aging and consuming less. This country is in economic decline, due to the rise of China , which has wiped out the dumping effects that had benefited the Archipelago so much over several decades between the 50s and 90s; also due to a real estate crisis that in many ways resembles China's today; and finally due to a depreciation of the dollar
in 1985, which ruined Japanese debt. Japan is the largest holder of US debt, ahead of China itself. Well, this time, it's the relationship with the dollar that's likely to pose a new problem.

The consequences of a financial turnaround

The fear of a crisis is that the markets will no longer lend to Japan. If it can no longer sustain its debt, the country will have to sell its US debt, i.e. sell dollars for yen, which will be used to buy back its debt. A sale which, incidentally, won't be so profitable, because the value of its debt has fallen, against a backdrop of the dollar being gradually called into question, notably by China, but not only: byArabia, by Russia, which in any case can no longer use it because of thepolitical use America has made of it.

Japan has no choice but to sell its savings in US bonds, to strengthen the yen and rescue the purchasing power of its population. But this sale will weaken the dollar, so the United States will have to raise interest rates to attract creditors. This will obviously have a negative impact on American growth. Credit will be harder to obtain, and money, whose circulation is like blood in the body, will run out, causing thrombosis in the production apparatus on the other side of the Pacific.

A global crisis on the horizon?

And naturally, if America catches a cold, the whole world will sneeze. Here we see how theinterweaving of economies can sweep everything away. American debt, as we know, is even more terrible. In fact, it has no rivals, amounting to $100,000 per capita - in this country full of poor people - and corresponding to a third of the world's GDP.
of the world's GDP. So this is hardly the time to weaken the dollar with a massive sale
by its biggest creditor. But Japan has no choice... Let's wait and see.

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