Japan Debt Rise: High interest rates and rising inflation in Japan have left large numbers of people burdened with personal debt. Consumer debt is growing at the fastest rate in 16 years and household debt will exceed average income for the first time in 2023. According to government data, the average household debt is expected to rise to ¥6.55 million ($42,000) in 2023. As Japan’s central bank raised borrowing costs, people who were accustomed to low interest rates are now struggling to cope with rising debt.
According to lawyers, personal bankruptcy cases have reached record levels since the pandemic. More than 70,000 people filed for bankruptcy in 2023. This figure may reach 75,000-80,000 by the end of the year. Additionally, the number of debt-related suicides increased to 792 in 2023. This figure was last seen in 2012, when a government crackdown shut down thousands of moneylenders.
Wage and debt imbalance
The average salary in Japan is much lower than that of developed countries. In 2023, the average salary in Japan was $47,000, while in the US it reached $80,000. According to the Organization for Economic Co-operation and Development (OECD), the household debt ratio in Japan is 122% of average disposable income.
Debt repayment cycle and social pressure
Many people are getting trapped in the cycle of loan repayment. A 60-year-old woman said that she was forced to borrow money from one lender and repay it to another. High interest rates ranging from 14% to 18% are making this problem more serious.
Response of government and financial institutions
The Bank of Japan (BOJ) pointed to rising household debt in its October 2023 financial system report. According to the report, the younger generation is having to pay more interest due to increasing homeownership. While strict rules were imposed on consumer loans in the last decade, the trend of taking loans has increased again in recent years.
What is the way forward?
- Salary Increase: According to economists, companies need to increase salaries to keep pace with rising inflation.
- Debt Awareness Campaign: Educating people about personal finance management and the dangers of debt.
- Legal Reforms: There is a need to increase surveillance on lenders and put a strict ban on high interest rates.
- Japan needs to take immediate and concrete steps to overcome this debt-related crisis.
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