NIRA OPINION PAPER
No. 63 | June 2022

NIRA OPINION PAPER
No.63 | June 2022

Changes in National Debt as a Result of
the COVID-19 Pandemic- An International Comparative Perspective Yuri Okina

Executive Vice President, NIRA / Chairperson, The Japan ResearchInstitute, Limited

The COVID-19 pandemic has led to the expansion of debt in nations throughout the world.
With inflation rising and monetary policies tightening in Europe and the United States,
there are concerns that private companies and governments holding significant debt will
face an increased burden of interest payments, while financial institutions and otherbond-holders will increasingly be affected by a decline in the value of their holdings.
This paper will review and analyze the extent to which debt has expanded due to the
COVID-19 pandemic from an international comparative perspective, and will also
examine future policy issues. From an international perspective, in Japan and many
Western industrialized nations, government debt has expanded rapidly due to the
COVID-19 pandemic, and corporate debt has also tended to increase. Given this situation,
it will be important for each nation affected, including Japan, to consider the impact ofrising interest rates on the real economy and the global financial system during a futurephase of monetary tightening in Europe and the United States.
In particular, we must bear in mind that Japan’s outstanding government debt isenormous even by international standards, and that rising interest rates may reduce thenation’s capacity for fiscal expenditure in the future. At the same time, while the nonmanufacturing sector in particular has seen a marked increase in debt, it also possesses
ample cash resources and deposits with financial institutions. In the case of companies
that may become mired in excessive debt, there is an urgent need to create anenvironment that will facilitate corporate rehabilitation at an early stage.

This is a translation of a paper originally published in Japanese in June 2022.
Copyright Ⓒ 2022 by Nippon Institute for Research Advancement
This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation
presented here. Translated by Michael Faul.

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The COVID-19 pandemic has led to a global increase in outstanding government and private
sector debt. IMF (2021) indicates that debt surged in 2020, reaching a record high of US$226
trillion, or 256% against GDP, as of the end of the year. As inflation increases, monetary policyin Europe and the U.S. has shifted to monetary tightening and interest rates are displaying a
dramatic increase. As a result, there is concern that governments and private sector companies
holding significant debt face an increased interest payment burden, while financial institutions
and other bond-holders are increasingly affected by a decline in the value of their holdings. This
paper will review and analyze the status of increase in debt due to the COVID-19 pandemic
based on an international comparison, and in addition will discuss future policy issues.

1. International Comparison of the Status of Debt in the Government andPrivate Non-Financial Sectors
Japan Stands Out With Its High Level of Government Debt
First, looking at the debt-to-GDP ratio of the government sector and the private non-financial
sector (private companies and households) combined, we see that Japan has the highest level
among OECD nations (Figure 1). In the case of Japan, the extremely high level of government
debt stands out. Japan is followed in its level of debt by France, where the outstanding debt of
the private corporate sector is high.
It should be noted that the graphs below are as a rule based on market value data forinternational comparison. However, because only face value data (including accrued interest) isavailable in the case of China's government sector, face value is used for government sector
comparisons (Note 1).
Figure 1: Debt of the government, non-financial corporate, and household sectors as apercentage of GDP (Q1 2021)(Note) China's government debt is face value (including accrued interest); all other figures are market value.
(Source) Formulated by NIRA based on BIS total credit statistics.
Copyright Ⓒ 2022 by Nippon Institute for Research Advancement
This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation
presented here. Translated by Michael Faul.

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From a Medium-Term Perspective, the COVID-19 Pandemic Has Already Increased
National Debt
Looking at the debt levels of government and private non-financial sectors over a timeline ofapproximately 20 years, Figure 2-(1) shows that in many nations, the level of debt has alreadyincreased significantly as a result of the COVID-19 pandemic. Many nations experienced anincrease in debt as a result of the global financial crisis (the “Lehman shock,” as it is known inJapan) from 2008, but even compared to that period, a greater number experienced rapid
increases in debt in 2020. In these nations, increase in debt in the government sector isparticularly marked (Figure 2-(2)), but a similar trend can also be seen in the corporate sector(Figure 2-(3)). By contrast, certain nations excepted, household sector debt, while rising, has not
displayed a significant increase (Figure 2-(4)).
Figure 2: Trends in debt-to-GDP ratios in the non-financial sector(1) Overall non-financial sector (government, non-financial corporate, and household sectors)(Note) The figures for China are based on the face value of government debt (including accrued interest);
all other figures are market value.

Copyright Ⓒ 2022 by Nippon Institute for Research Advancement
This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation
presented here. Translated by Michael Faul.

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No. 63 | June 2022
(2) Government sector(Note) International comparison based on face value for this graph only

(3) Private sector (Non-financial)

Copyright Ⓒ 2022 by Nippon Institute for Research Advancement
This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation
presented here. Translated by Michael Faul.

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NIRA OPINION PAPER
No. 63 | June 2022
(4) Household sector(Source) Formulated by NIRA based on BIS total credit statistics

Japan's Outstanding Government Debt Is Also Remarkable for Its Growth
Looking at trends in debt-to-GDP ratios by nation, Japan's ratio has consistently increased, andthis has been exacerbated by the COVID-19 pandemic. France and Canada are next behindJapan, and display a similar trend (Figure 2-1).
If we consider the government sector, we see that Japan's debt stands out not only for its highlevel, but also for the fact that it has grown more significantly than that of other nations inrecent years (Figure 2-2). As indicated above, due to limitations on the data available for China,
international comparisons of government sectors in this paper are based on the face value ofdebt for each nation. Government sector debt levels have also increased significantly and standat high levels due to the COVID-19 pandemic in numerous other nations, including Italy, theU.S., and France. According to a report published by the U.S. Congressional Budget Office(CBO) in May 2022, the U.S. government sector debt-to-GDP ratio is projected to gradually
increase in the future due to the burden of interest payments and increased social security
expenditure, reaching approximately 1.85 times its current level by 2052.
Looking at the corporate sector, corporate debt in Japan declined and flattened out from 2000,
but displayed its first significant increase since then against the background of the COVID-19
pandemic (Figure 2-3). Corporate debt in China grew significantly in the 2010s following the
global financial crisis. The figure was among the highest for major nations in 2016, but the levelof increase has recently slowed. In addition, corporate debt has also grown significantly in
Copyright Ⓒ 2022 by Nippon Institute for Research Advancement
This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation
presented here. Translated by Michael Faul.

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NIRA OPINION PAPER
No. 63 | June 2022
France in the last decade.
Household sector debt has risen in Canada, the United Kingdom, and the United States due tothe COVID-19 pandemic, but the increase in household debt in other nations has not been as
high as the increase in the government and corporate sectors (Figure 2-4). However, the sharp
rise in delinquency rates for credit card debt and personal loans among low-income subprime
borrowers in the U.S. is a cause for concern (Note 2). Note that the overall debt level of U.S.
households is about 80% of its level at the time of the global financial crisis.

China's Corporate Debt Levels Have Increased Significantly Over the Medium-Term
China's total outstanding corporate, household, and government debt as a percentage of GDP
grew at a high rate for more than a decade, as shown in Figure 2-1. Figures 2-2, 2-3, and 2-4
show that while the growth of government debt has been controlled in China, outstanding
corporate and household debt has grown significantly since the beginning of the 2010s.
Subsequently, although there was an increase due to the COVID-19 pandemic, growth in debt
has slowed due to the government's deleveraging policy (Note 3).
According to the October 2021 S&P Global Rating report, it is not only certain companies in
China's corporate sector that are heavily indebted. In terms of debt quartiles for all global
companies, 58% of Chinese companies are highly-indebted. State-owned enterprises inparticular have borrowed heavily from domestic banks; the Chinese government provides thesecompanies with “implicit government guarantees.” In addition, the increase in corporate bondissuance by real estate-related and other companies has also contributed to the increase in thecorporate sector's debt levels, as highlighted by the deterioration of the Evergrande Group'sbusiness conditions in 2021. It has been noted as a problem in the corporate bond market thatratings by Chinese rating agencies are unreliable (Note 4). We have seen defaults by real estaterelated companies since 2021 (Note 5), and it should be noted that the corporate bonds issued
by these companies are also purchased by foreign investors, and there may therefore be aninternational risk ripple effect.
While China's external debt is expanding, its external claims on emerging economies, etc. arealso increasing. This is resulting in a gradual increase in the nation’s external net assets,making it the next largest creditor nation after Japan and Germany (Figure 3). However, thefact of being an external creditor nation is only one element in making an evaluation, given thatthe risk-return composition of external assets and liabilities differs from nation to nation. For
example, U.S. external debt has in fact increased significantly since the 2010s, as shown in
Figure 3, but to date this has not been viewed as a matter of great concern (Note 6).
Copyright Ⓒ 2022 by Nippon Institute for Research Advancement
This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation
presented here. Translated by Michael Faul.

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No. 63 | June 2022
Taking all of the above into consideration, it will be necessary to pay attention to trends in
Chinese real estate prices, the tendency of domestic inflation and monetary policy, and thegovernment's stance in relation to the real estate and excess debt issues in order to determine
whether the stability of China's financial system, with its increasing debt, can be maintained in
the future.
Figure 3: Trends in net external assets(Source) Formulated by NIRA based on IMF statistics

2. International Comparison of Trends in the Growth of Debt and the Corporate
Debt Repayment Burden During the COVID-19 Pandemic
Next, looking at changes in debt during the period of the outbreak and rapid spread of COVID19 (2020), we see that the level of debt-to-GDP ratios in many nations increased significantly incomparison to the period before the advent of COVID-19 (Figure 4). Several major nations saw
increases of close to 40 to 50 percentage points, with Canada in particular recording a 54
percentage point increase. This figure is followed by those recorded by France, the United
Kingdom, the United States, Italy, and Japan. China recorded an increase of just under 30
percentage points.
Looking at the breakdown of debt growth in each nation considered, the government sector
contributed to the growth of debt in most of the nations, accounting for the majority of theincrease. In Canada, France, and Japan, the private sector also contributed to the increase in
outstanding debt. A consideration of whether levels of outstanding private sector debt are
related to GDP growth found no clear correlation (Note 7).
Copyright Ⓒ 2022 by Nippon Institute for Research Advancement
This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation
presented here. Translated by Michael Faul.

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No. 63 | June 2022
On the other hand, looking at the deviation from the long-term average of the debt service ratio(the ratio of corporate debt service to revenue), which shows the debt service burden of private
sector companies, we see that the debt service burden has increased in most nations, inparticular France, due to the COVID-19 pandemic (Figure 5). The debt repayment burdens ofJapanese private companies are low by international standards. This can be attributed to thefact that the excess debt of the 1990s has been eliminated over the years and that corporate
earnings, in particular in sectors such as manufacturing, have been relatively strong due to thedepreciation of the yen since the second half of 2012. It should be noted, however, that the debt
service ratio began to increase beginning around 2018, and continued to rise during the COVID19 pandemic.
Figure 4: Change in outstanding debt during COVID-19 pandemic (Year-on-year change
for Q4 2020)(Note) The difference in debt-to-GDP ratios between the Q4 2019 and Q4 2020 values is shown.
(Source) Formulated by NIRA based on BIS statistics.

Copyright Ⓒ 2022 by Nippon Institute for Research Advancement
This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation
presented here. Translated by Michael Faul.

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No. 63 | June 2022
Figure 5: Trends in debt service ratio(Note) The debt service ratio is the ratio determined by dividing corporate (non-financial) sector debt service
payments by the sum of gross disposable income and interest payments (including the cost of financial
intermediation services and dividend payments). For more information, see the BIS database for debt service ratios
for the private non-financial sector. The figure shows deviations from the long-term average for 1999-2019.
(Source) Formulated by NIRA based on BIS Statistics DSR

3. Status of Increase in Japanese Corporate Debt Due to the COVID-19
pandemic
Increase in Non-Manufacturing Sector Debt Levels Due to the COVID-19 Pandemic
To continue, we will analyze the status of increase in debt among Japanese companies during
the COVID-19 pandemic (Figure 6). Looking at changes in the outstanding debt of Japanesecompanies by level of capitalization, we see that there was a significant increase in theoutstanding debt of small and micro businesses with capitalization of less than 50 million yen(Figure 6-1). By industry (companies of all sizes), the increase in outstanding debt in the
manufacturing sector is low, while outstanding debt in the non-manufacturing sector has
increased, especially from the second quarter of 2021 (Figures 6-2 and 6-3). A survey of theoutstanding debt of small and medium-sized enterprises (SMEs) with capital of less than 100
million yen confirms that there has been almost no increase in debt in the manufacturing sector,
while debt in the non-manufacturing sector has increased significantly.
In the non-manufacturing sector, outstanding debt has increased in particular in the production,transmission and distribution of electricity, construction, information and communication
sectors (Figure 6-4). In the production, transmission and distribution of electricity sector, somemajor electric power companies aggressively issued bonds as motivation to purchase increased
among investors with the expansion of the Bank of Japan's corporate bond-buying operations.
Copyright Ⓒ 2022 by Nippon Institute for Research Advancement
This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation
presented here. Translated by Michael Faul.

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In the construction sector, by contrast, SMEs have significantly increased their borrowing fromfinancial institutions as a hedge against future decline in the market. The information andcommunications sector also saw an increase in borrowing from non-financial institutions.
Figure 6: Trends in outstanding debt of Japanese companies during the COVID-19 pandemic(2019 quarterly average = 100)(1) All industries(Note) The breakdown of outstanding debt in 1Q 2020 is approximately 74 trillion yen for the manufacturingsector and approximately 277 trillion yen for the non-manufacturing sector(2) Manufacturing

Copyright Ⓒ 2022 by Nippon Institute for Research Advancement
This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation
presented here. Translated by Michael Faul.

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NIRA OPINION PAPER
No. 63 | June 2022

(3) Non-manufacturing(4) By non-manufacturing industry(Note) Excluding the finance and insurance industries.
(Source) Formulated by NIRA based on Financial Statements Statistics of Corporations by Industry (MOF)

The Level of Cash and Deposits Increased Mainly in the Non-Manufacturing Sectorand Among SMEs
Further to the above, when we consider the relationship between these figures for outstanding
debt and figures for tangible and intangible fixed assets, in addition to cash and deposits (liquid
assets), based on the balance sheets of companies before and after the COVID-19 pandemic (Q12019 to Q1 2022), it is clear that in general, the increase in outstanding debt was greater in the
non-manufacturing sector than in the manufacturing sector. The debt level of large nonmanufacturing enterprises with capitalization of 100 million yen or more has risen by about

Copyright Ⓒ 2022 by Nippon Institute for Research Advancement
This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation
presented here. Translated by Michael Faul.

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NIRA OPINION PAPER
No. 63 | June 2022
29%, and the relationship between assets and debt also shows a markedly high level ofoutstanding debt.
The purpose of corporate borrowing during the COVID-19 pandemic was to secure funds; fixed
assets did not increase significantly during the COVID-19 period. Cash and deposits increased,
and the share of assets these represented also tended to increase slightly. In particular in thecase of large non-manufacturing enterprises, cash and deposits increased by more than 20%
during the pandemic. Among SMEs in both the manufacturing and non-manufacturing sectors,
the share of assets represented by cash and deposits was high before the pandemic, but it also
increased during the COVID-19 period, and currently accounts for the greater part of their total
assets (Note 8). This suggests that, from a macro perspective, there may be a large number ofenterprises that will still have the capacity to make capital investments even as interest rates
rise. Some corporate groups may therefore be more seriously affected by the yen's depreciation
than by rising interest rates in the future.
Note that intangible fixed assets such as software, data, and intellectual property account forless than 10% of the balance sheets of even large companies.
Figure 7: Changes in the breakdown of assets of Japanese companies before and after the
COVID-19 pandemic(Source) Formulated by NIRA based on Financial Statements Statistics of Corporations by Industry (MOF).

Copyright Ⓒ 2022 by Nippon Institute for Research Advancement
This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation
presented here. Translated by Michael Faul.

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NIRA OPINION PAPER
No. 63 | June 2022

Increased Repayment Burden for Accommodations, Eating and Drinking Services
Businesses
A consideration of cash flow by industry shows a sharp decline in cash flow among
companies involved in the areas of food and beverage services and tourism (Figure 8).
The Accommodations, Eating and Drinking Services industries were among theindustries that were most significantly affected by the COVID-19 pandemic, andirrespective of their level of capitalization, their cash flows deteriorated significantly,
raising concerns regarding an increase in debt repayment burden. In addition, NIRA`s“Questionnaire Surveys on the Effects of the Spread of COVID-19 on Telework-based
Work Styles, Lifestyle, and Awareness on Telework,” a survey of individual workers
which the institute is conducting on a continuing basis, revealed a serious situation inthese industries. Many respondents (almost 30%) working in the Accommodations,
Eating and Drinking Services industries reported a consistent decline in income in 2020(see Note 9). While this will also be dependent upon the status of recovery of demandin the tourism industry, including inbound tourism, there is concern that somecompanies will face a considerably larger repayment burden in the future.
Figure 8: Cash flows in the Accommodation, Eating and Drinking Services industries(Source) Formulated by NIRA based on Financial Statements Statistics of Corporations by Industry (MOF)

Impact on Management of Regional Banks, Etc.
The global rise in interest rates is beginning to affect banks and other institutions in Japan thatwere forced to invest in foreign bonds due to the extremely low interest rates on Japanese
government bonds (Note 10). There is concern that more banks will experience valuation losses
Copyright Ⓒ 2022 by Nippon Institute for Research Advancement
This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation
presented here. Translated by Michael Faul.

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No. 63 | June 2022
on foreign bonds. At the same time, regional banks and similar institutions have a duty tosupport the revitalization of companies affected by the pandemic. In Japan, it will now be evenmore necessary to focus on the stability of the financial system while encouraging management
reform among small and medium-sized financial institutions.

Summary and Policy Implications
The results of the survey presented here can be summarized as follows:(1) The COVID-19 pandemic has resulted in a significant increase in the ratio of non-financial
sector debt to GDP in many nations around the world. Ratios have risen in both the governmentand corporate sectors, but in nations in which debt has grown significantly, the increase ingovernment

sectordebt

accounts

forthegreater

part

of

the

increase.

(2) Japan's ratio of non-financial sector debt to GDP is among the highest in the world. A
breakdown of debt in this sector shows that outstanding government debt has grownconsistently over the past decade, and that the COVID-19 pandemic has added an even greater
amount of debt.
(3) Internationally, China stands out for the growth of debt in the non-financial sector as apercentage of GDP over the past 20 years. The growth of debt in the corporate and household
sectors in the last 10 years has been particularly noteworthy, but the rate of growth in debt has
slowed in the last one to two years, in part due to the effect of deleveraging policies.
(4) Japan's corporate debt-to-GDP ratio is not among the highest in the world, but the debt
service ratio began to increase in 2018, and this increase continued over the period of the
COVID-19 pandemic.
(5) A breakdown of Japanese corporate debt by industry and company scale shows a noticeable
increase in the non-manufacturing sector and among SMEs. In addition, cash flows forcompanies in the areas of food and beverage services and tourism have declined, and there isconcern that repayment burdens may increase. A high level of borrowing to secure funding has
led to a further accumulation of financial assets in the form of cash and deposits, in particularin the non-manufacturing sector and among SMEs.
The policy implications of these results are as follows:

Copyright Ⓒ 2022 by Nippon Institute for Research Advancement
This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation
presented here. Translated by Michael Faul.

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No. 63 | June 2022
(1) Outstanding debt increased in many nations around the world, and as we entered 2022, thelevel of inflation rose, in particular in the United States and Europe. Given this expansion ofdebt and the existence of financial imbalances, we should pay close attention to the impact on
both the real economy and the financial system during phases of interest rate increase.
(2) First, in the U.S. and Europe, central banks need to carefully pursue monetary tightening
while carefully considering limiting their scope of action in order to avoid stagflation.
Consideration should be given to the fact that the rising interest payment burden in the private
corporate sector will also force private firms to restructure, and the scale of private sector debt
may become a drag on economic recovery. The growing repayment burden on households,
including low-income households, should also be taken into consideration.
(3) As monetary tightening proceeds in various nations and upward pressure is exerted on longterm interest rates, the interest payment burden on the government sector is expected toincrease. This would reduce the government sector’s capacity for fiscal expenditure and should
be watched closely over the long term.
(4) It will be important to monitor, from the perspective of the stability of the global financial
system also, whether increases in interest rates will cause risks to manifest. Given the fact thatthe risk exposure of financial institutions and the corporate bond market has increased as aresult of long-term monetary easing, it will be necessary to pay close attention to the
manifestation of credit risk, interest rate risk, and other risks. In addition, the impact onfinancial markets in emerging nations will also require close attention.
(5) It will be necessary to carefully monitor future trends in China's corporate sector debt, which
has increased significantly since 2010, in order to determine whether it will act as a drag on
China's economic recovery and how it will affect global financial markets.
(6) Japan's government sector debt-to-GDP ratio is one of the highest in the world. If thissituation is left unchecked, rising interest rates will reduce the capacity for future fiscal
expenditure. At the same time, because investment to stimulate growth is also necessary, it will
be important to pursue modes of expenditure that contribute to further growth.
(7) It should be noted that while the Japanese corporate sector has high cash and deposit
balances, debt levels are high in the non-manufacturing sector. In the case of companies forwhich the future manifestation of an excess debt problem is a concern, it will be desirable tohasten the creation of an environment conducive to early business revitalization (e.g.,facilitating voluntary liquidation, ensuring that executive guarantees do not become a
Copyright Ⓒ 2022 by Nippon Institute for Research Advancement
This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation
presented here. Translated by Michael Faul.

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bottleneck, and establishing active labor market policies). At the same time, it also suggests thatin the medium term, firms of all sizes will need to invest in intangible assets.
(8) The impact on the management of financial institutions of the widening valuation losses on
foreign bonds and other securities held by Japanese regional banks and cooperative financial
institutions should also be closely monitored in the future.

References
Congressional Budget Office (2022), The Budget and Economic Outlook: 2022 to 2032
Gian Maria Milesi-Ferretti (2021), “The US is Increasingly a Net Debtor Nation. Should We Worry?,”
Brookings
Institution S&P Global Ratings (2021), “Can China Escape Its Corporate Debt Trap?,” Standard &Poor's Financial Services LLC
Vitor Gaspar, Paulo Medas, & Roberto Perrelli (2021), “Global Debt Reaches a Record $226 Trillion,”
IMF Blog
Wall Street Journal (May 19, 2022), “More Subprime Borrowers are Missing Loan Payments”
Shigetoshi Otake and Masayuki Aoki (2019), “China’s Excess Debt Problem,” Mitsubishi UFJ Trust
Asset Management Information, Mitsubishi UFJ Trust and Banking Corporation (In Japanese)
Yukio Noguchi (2022), “A New Phase of Depreciation of the Yen - For Companies, it will be More
Important to Prevent the Depreciation of the Yen than to Suppress Interest Rates,” Diamond Online(May 26, 2022) (In Japanese)
Yuji Miura (2021), “Limits of China's Growth Pattern Highlighted by Excessive Debt,” Pacific Rim
Business Information Vol.21 No.83, Japan Research Institute (In Japanese)
Nikkan Kogyo Shimbun, "Issuance of Straight Bonds from April to June down 9.8%, exceeds ¥3
trillion for Second Consecutive Year," (July 29, 2020) (In Japanese)
Tokyo Shoko Research Ltd., “Borrowings during the Pandemic increase by One Month’s Sales
Revenue" (September 27, 2021)

Note* Data analysis for this paper was conducted by Kozue Sekijima, a NIRA Research Coordinator andResearch Fellow.
1 According to BIS total credit statistics, market value data on government debt is not available for
China. BIS therefore used annual face value data from the IMF's WEO database, and quarterly
values were calculated by linear interpolation.
2 See Wall Street Journal (2022) among other sources.
3 In the case of China, it should be noted that it is not possible to determine, based on these statistics,
whether the entirety of the recent increase in offshore dollar-denominated corporate bond issuance,
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etc., is included. In addition, it is possible that the corporate sector debt includes the debt of companies
affiliated with local governments.
4 See Otake and Aoki (2019).
5 For example, Sunac China Holdings Limited, China's third largest real estate company by homesales, announced a default on its offshore corporate bonds in May 2022 (Nihon Keizai Shimbun, May
12, 2022).
6 The expansion of U.S. external debt has been brought about by the rise in stock prices among U.S.
companies and the appreciation of the dollar; the fact that yields on external assets have exceeded
those on liabilities (such as Treasury securities) is also a factor in the background. It has been argued
that the expansion in external debt is not in itself a cause for concern (see, for example, Milesi-Ferretti(2021)). However, a future rise in interest rates may change this perspective.
7 With regard to the nations in Figure 4 (excluding China), the correlation between corporate (nonfinancial) debt and the rate of change in real GDP from 4Q 2019 to 4Q 2020 is approximately -0.5.
8 Noguchi (2022), based on his analysis of the MOF’s Financial Statements Statistics of Corporations
by Industry, finds that the reason for the considerable expansion in cash and deposits among
Japanese companies before the pandemic was the fact that, from a macro perspective, the retained
earnings of the companies up to the advent of COVID-19 were high, and could not be completely
absorbed by capital investments. He does not take it to be the case that cash and deposits increased
as a result of borrowing, nor that companies were stockpiling profits in cash and deposits.
9 For details, see Toshihiro Okubo and Nippon Institute for Research Advancement (NIRA) (2021),
Report on the Third Survey of Workers regarding Telework.
10 For example, Kirayaka Bank (Yamagata City), a subsidiary of Jimoto Holdings, has applied for an
injection of public funds (May 13, 2022), in part due to the growing valuation losses on foreign bondsthat it holds. Japan’s five major banking groups also recorded significant unrealized losses on foreign
bonds of 1.7 trillion yen at the end of March 2022, 4.7 times the amount at the end of December 2021
(Nihon Keizai Shimbun, May 17, 2022).

Yuri Okina
Dr. Okina is an Executive Vice-President of the Nippon Institute for Research
Advancement (NIRA), and the Chairperson of the Japan Research Institute (JRI).
She holds a doctorate in economics from Kyoto University. Dr. Okina’s publications
include Kinyuu kiki to puruudensu seisaku (“Financial Crisis and Prudential
Policy”) (Nikkei Publishing Co., Ltd., 2010; in Japanese). She is also a member ofgovernment committees including the Financial System Council and the Industrial
Structure Council.

Copyright Ⓒ 2022 by Nippon Institute for Research Advancement
This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation
presented here. Translated by Michael Faul.

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