A common reply to the idea that the UK can’t simply cancel its debt is:

“Well, Japan has debt of more than 250% of GDP, and they seem fine. Why not just copy what they do?”

It’s a good question — and Japan is the most extreme example of a rich country handling enormous government debt without falling apart.

But Japan’s system is fundamentally different from the UK’s.

To understand why, we can return to the same analogy we used in Post 1:

the Government and the Central Bank as a Parent and Adult Child Sharing a House.

Except in Japan, this household operates very differently.

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1. In Japan, the Parent and Adult Child Share the House… and Quietly Co-Manage the Finances

In the UK household, the parent (the government) and the adult child (the Bank of England) must keep a very clear financial separation so the neighbours — the financial markets — trust the arrangement.

Japan’s household is different.

In the Japanese home:

• The parent (Government) and
• The adult child (Bank of Japan, BOJ)

live together in a way that is much more cooperative, predictable, and culturally embedded.

They still have separate accounts, formally…
but everyone in the house understands they operate almost as a unified team.

Nothing sudden.
Nothing dramatic.
Nothing that signals chaos.

And — crucially — nothing that crosses the bright red line of outright debt cancellation.

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2. The Adult Child Buys Nearly Half the Household IOUs — and Quietly Rolls Them Over Forever

Japan has the BOJ owning around 50% of all government bonds.

In our household analogy, this means:

The adult child buys IOUs from the parent — and never asks for repayment.

But the child also never tears them up.
They simply renew them again and again.

This avoids the panic that would come from cancelling the IOUs (which would say “the parent is raiding the child’s savings”), while still giving the parent permanent breathing room.

So Japan’s strategy is not “debt cancellation”.
It’s debt in permanent, quiet suspension.

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3. Japan Uses Yield Curve Control — the Adult Child Keeping Household Bills Artificially Low

In 2016, Japan introduced Yield Curve Control (YCC).

This means the BOJ sets the interest rate for 10-year government bonds and will buy whatever is necessary to keep that rate near the target.

In our analogy:

The adult child steps in whenever household bills rise and says:
“Don’t worry, I’ll keep these costs near zero.”

The parent never faces a scary spike in borrowing costs.

The neighbours see a calm, steady household.

Everyone inside the house knows the arrangement is unusual —
but they keep it going because it works for them.

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4. The Japanese Household Has Unique Conditions: Low Inflation, High Savings, Stable Behaviour

Japan’s system works because the household itself is unusual:

‣ The family doesn’t overspend

‣ Prices in the house hardly rise

‣ Everyone prefers saving to consuming

‣ The household is ageing and conservative

‣ No one pushes for risky financial behaviour

In the analogy:

The parent’s outgoings stay low, the adult child’s income is stable, and no one in the house is demanding expensive new habits.

This creates a calm environment where the adult child can keep buying IOUs without destabilising the household.

The UK does not have these conditions —
our household is noisier, more unpredictable, and more exposed to outside pressures.

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5. Most of Japan’s Household Money Never Leaves the House

Another key difference:

Over 90% of Japanese government debt is held domestically.

In the analogy:

Almost all the household’s money is kept inside the family.
No unpredictable neighbours.
No foreign lenders banging on the door.
No rapid withdrawals of trust or credit.

Japan’s IOUs circulate safely within the house.
The UK’s do not — we rely far more heavily on money coming from outside.

So if the UK tried Japan’s strategy, we’d immediately alarm:

• international markets
• currency traders
• foreign holders of gilts

Japan can play this game safely because the audience is almost entirely family.

The UK cannot.

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6. The Japanese Adult Child Never Lets the Household Appear Chaotic

A critical difference:

Even though the BOJ and the government work closely, they never look like they’re merging finances.

They avoid anything dramatic — especially debt cancellation — because that would publicly reveal how intertwined their roles really are.

In our analogy:

They keep the peace by quietly renewing IOUs, not ripping them up.

Cancelling the IOUs would send the neighbours into panic, so they simply never do it.

This is the subtlety most commentators miss:
Japan succeeds precisely because it does not cancel the debt.

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7. Why the UK Cannot Simply Copy Japan’s Household Arrangement

Bringing these analogy points together:

❌ The UK does not have Japan’s ultra-low inflation

❌ The UK does not have Japan’s domestic savings cushion

❌ The UK does not have Japan’s patient investor base

❌ The UK does not have Japan’s stable, slow-moving household dynamics

❌ The UK cannot keep markets calm while rolling over half its debt forever

If the UK tried the Japanese household arrangement, the neighbours (global markets) would instantly notice:

🔥 Sterling would weaken

🔥 Interest rates would rise

🔥 Inflation expectations would jump

🔥 Borrowing costs would spike

🔥 Trust in the Bank of England’s independence would fall

Where Japan has a quiet, coordinated household…
The UK would look like a household suddenly rewriting the rules mid-conversation.

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⭐ The Bottom Line

Japan hasn’t “solved” government debt.

It has created a stable household arrangement where the adult child quietly renews the parent’s IOUs forever — without ever cancelling them.

The UK cannot simply copy this, and even Japan avoids crossing the line of outright cancellation.

Japan’s system works because the family understands the rules, the neighbours trust the household, and nothing is done suddenly or dramatically. It also works because, in this household, the adult child effectively has far greater financial power than the parent, and the family’s banks trust the child completely.

The UK’s system is built on different foundations — and cancellation would shake them. Basically the neighbours (Global markets) don’t trust the UK household not to do anything suddenly or dramatically.

If you remember the posts on “Business forecasts on Government budgets” – we have come back to the same basic issue.

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So what next? Well I think I will continue and look at a few more of the “Common Sense” solutions to government debt.

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