Abstract
The ratio of the Japanese government long-term debt to GDP in 2006 is 117%. It is the worst in OECD countries. Japan is in the extraordinary situation where the Japanese government has to spend over 40% of its tax revenue to national debt service. A moment of great crisis of national bankruptcy is coming. However the Japanese government continues to issue the ten-year Japanese Government bonds with a very low coupon rate, while every year it must get huge money by government bond from a financial market already suffering its oversupply. At first this paper focuses on the historical accumulation of the Japanese government bonds. One of the major factors that allowed the Japanese government to expand public finance depending on government bond is article 4 of the Public Finance Law. Issuing construction bonds to finance public work has no limit except approval by Parliament according to this article. Secondly this paper discusses the credibility of the state or the government as a borrower. The economic power of the state to levy tax is originally based on the political power of the state as a political subject. Therefore the economic power of the state dually influences a relationship between creditor and debtor as market mechanism. Although it usually strengthens the credibility of the state as a borrower, it might ruin its creditors facing a crucial fiscal crisis.
