One of the most important foundations for measuring confidence in a currency is the ratio of public debt to GDP, a value that became well known during the sovereign debt crisis in Europe, with a level above 100% starting to create some problems in accepting the currency of the country with this burden. However, as in almost everything there are exceptions, in this case the main one is the Yen, with the Japanese currency continually challenging the usual risk assessment logic for several decades, considering that it is the country with the highest public debt vs GDP of the world, around 256.86% in 2021, and despite this it remains a safe haven currency whenever there is market turmoil.
There are some reasons for this, namely the confidence that investors place in Japan’s ability to fulfil its obligations, firstly due to the culture of compliance of its citizens, as well as the confidence that nationals place in its debt, which is expressed in the strong involvement of funds in the acquisition of this debt, to which are added the significant purchases that the Bank of Japan has made, which account for around 70% of all debt issued, which gives it approximately 45% at this stage, of all existing debt. The stability of this “ecosystem” is such that investing against Japan’s sovereign bonds is termed as a “widowmaker trade”.
