The danger is not running out of yen. It is running out of capacity.
A Commentary on Ken McMullen’s Article
This essay comments on Ken McMullen’s article, “Japan’s Economic Reality: A Harbinger of What’s to Come to the U.S.A.”, published on July 15, 2026.
McMullen presents Japan as a warning to the United States and the world. He points to Japan’s massive public debt, weak yen, rising inflation, and higher interest rates. He argues that Japan’s debt is finally catching up with it. He fears this could trigger a wider bond and currency crisis. (Medium)
His warning deserves attention. Japan does face serious economic pressures. However, Modern Monetary Theory shows that he identifies the wrong central danger.
Japan’s biggest problem is not its ability to repay yen debts. Japan creates the yen.
Its real challenge is maintaining the resources that give the yen value.
The Frightening Number
Japan’s public debt exceeds 250 percent of its annual economic output. That number sounds terrifying.
Imagine a family owing more than twice its yearly income. The family could face bankruptcy because it cannot create money. It must earn income before paying its debts.
However, Japan is not a household.
The Japanese government issues the yen. Its debts are mainly written in yen. It can always make payments authorized in its own currency.
That does not mean Japan can spend without limits. It means its limits are not financial.
Japan cannot run out of yen. It can run out of workers, energy, food, and productive capacity.
That difference changes the entire story.
A Currency Issuer Is Not a Currency User
Modern Monetary Theory begins with one important distinction.
Some governments issue their own currencies. Others use currencies they cannot create.
Japan issues the yen. The United States issues the dollar. The United Kingdom issues the pound.
A currency user must obtain money before spending. A currency issuer creates new money through authorized government payments.
This does not make the government all-powerful. It simply changes the nature of the constraint.
A currency issuer cannot become unable to pay debts in its currency. However, it can make poor decisions. It can cause inflation, weaken its currency, or waste scarce resources.
McMullen treats Japan like a currency user. That leads him toward the wrong diagnosis.
Public Debt Is Also Private Wealth
The article treats government debt as a burden hanging over society.
However, every financial debt has another side.
A Japanese government bond is a government liability. It is also an asset owned by someone else.
Banks hold government bonds. Pension funds hold them. Households, businesses, and the central bank also hold them.
When Japan pays interest, that payment does not vanish. It becomes income for the bondholder.
This does not prove every government deficit is beneficial. Wasteful spending remains wasteful. Poorly designed programs can still cause harm.
However, we cannot judge public debt by examining only one balance sheet.
A government deficit creates financial assets outside the government. One sector’s deficit becomes another sector’s surplus.
The public debt is partly the record of yen the government spent but never taxed away.
Bonds Do Not Finance Japan
The article suggests Japan depends on bond buyers to continue financing its government.
That assumption also treats Japan like a household.
Japan does not need investors to supply yen. The Japanese government and central bank already control the yen system.
Government bonds change the form of existing financial assets. They exchange ordinary money for interest-paying government securities.
Think of two accounts at the same bank.
One is a checking account. The other is a savings account that earns interest.
Moving money between those accounts changes its form. It does not give the bank money it could not create.
Government bond sales work in a similar way.
Japan may use bond sales to manage interest rates and financial markets. It does not need bonds to obtain its own currency.
Rising Interest Costs Have Two Sides
McMullen warns that higher interest rates will raise Japan’s debt-servicing costs.
That statement is true, but incomplete.
Higher rates increase government interest payments. Those payments become private income.
The government pays more. Bondholders receive more.
This can produce mixed results.
Higher borrowing costs may hurt businesses and households. Yet higher interest payments may increase income for wealthy savers, banks, and pension funds.
Higher rates can therefore weaken one part of the economy while stimulating another.
This is why interest rates are a blunt policy tool.
They do not simply remove money from the economy. They also change who receives money.
In a country with large public debt, higher rates can create major interest income. That income may support demand and even increase inflation.
The government’s higher cost is someone else’s higher earnings.
The Weak Yen Reveals the Real Problem
McMullen makes a stronger argument when discussing the yen.
Japan depends heavily on imported energy and raw materials. A weaker yen makes those imports more expensive.
Japan can create yen. It cannot create foreign oil with a keyboard.
It cannot print natural gas, iron ore, wheat, or industrial minerals. It must produce exports or exchange yen to obtain them.
This is where Japan’s monetary freedom meets the real world.
A weak currency raises the cost of imported essentials. Those costs spread through transportation, food, manufacturing, and household bills.
This can reduce living standards and create inflation.
Japan’s danger is therefore not financial insolvency. It is declining purchasing power against needed foreign resources.
That is a genuine economic constraint.
Inflation Is About Resources
The article links high debt, inflation, and collapse. Yet it never clearly explains how one causes another.
A government deficit does not automatically create inflation.
Inflation occurs when total spending pushes beyond available production. It can also come from shortages, energy costs, currency weakness, or corporate pricing power.
Japan carried large public debt for decades without high inflation. It often struggled against falling prices.
That history weakens the claim that a large debt ratio must produce inflation.
The better question is simple.
What became scarce?
Workers may become scarce as Japan’s population ages. Energy may become costly because Japan imports much of it. Food and raw materials may rise with the weak yen.
These pressures can cause inflation without any government financing crisis.
Money is unlimited as an accounting tool. The things money can buy remain limited.
An Aging Society Changes the Balance
Japan’s aging population is a deeper problem than its debt figure.
More people need pensions, healthcare, and daily support. Fewer working-age people produce goods and provide services.
The issue is not finding enough yen for pensions. Japan can create yen.
The issue is producing enough food, housing, healthcare, energy, and care services. Money cannot help when the needed workers and goods do not exist.
Imagine a town with ten nurses and one thousand patients. Printing more money cannot instantly create more nurses.
It may help train and hire nurses over time. However, it cannot replace the years needed for education and experience.
Japan must therefore invest in human capability, technology, productivity, and care systems.
The real burden on future generations is not public debt. It is weakened productive capacity.
Japan’s Deficits Have Supported the Private Sector
The article asks readers to fear Japan’s government deficit.
It does not ask what would happen without that deficit.
Japanese households and businesses have often saved large amounts. When the private sector saves, it spends less than its income.
Someone else must spend more than their income. Otherwise, national income falls.
Government deficits have helped fill that gap.
If Japan rapidly cut spending to reduce debt, household and business income would also fall. Consumption could weaken. Companies might invest less.
Tax collections would then fall. Welfare needs could rise.
A policy meant to reduce the deficit might weaken the economy instead.
Government deficits are not automatically good. However, they often support private savings and economic stability.
The correct deficit depends on the economy’s needs.
What Japan Really Warns Us About
McMullen is right that Japan offers lessons for other countries.
However, the lesson is not that public debt eventually brings unavoidable bankruptcy.
Japan warns us about aging societies. It warns us about import dependence. It warns us about weak productivity and unequal wealth.
It also warns us about relying too heavily on interest rates.
Most importantly, Japan shows that financial capacity and real capacity are different.
A country may have endless financial numbers. Yet it still needs workers, energy, skills, factories, farms, and functioning institutions.
The United States also issues its own currency. It cannot involuntarily run out of dollars.
However, it can still neglect infrastructure, education, healthcare, housing, and productive capacity.
It can create money. It cannot create prosperity without real resources and wise public choices.
The Wrong Question Creates the Wrong Policy
When leaders ask, “How will we pay for it?” they often begin in the wrong place.
For a currency-issuing government, the better questions are practical.
Do we have enough workers? Do we have enough equipment? Can our farms and factories produce what we need?
Will this spending cause shortages? Will it strengthen our future productive capacity?
These questions move the debate from financial fear toward economic reality.
The danger of McMullen’s argument is not merely academic.
When people believe governments are running out of money, they accept harmful austerity. Public services are cut. Infrastructure decays. Unemployment rises.
The nation may then destroy the very capacity needed to manage future crises.
It protects its financial score while weakening the real economy.
Closing
Japan faces serious economic problems. McMullen is right to call attention to them.
However, Japan’s public debt is not a ticking household bill. It is largely denominated in a currency Japan itself issues.
Japan can always make yen payments. It cannot guarantee what those yen will buy.
Its true limits are workers, skills, energy, technology, production, and ecological capacity. Its weak yen matters because Japan needs imports.
Its aging population matters because fewer workers must support more people.
Japan’s warning is not that sovereign governments eventually run out of money.
The warning is more important.
A nation can create currency, but it must still create capability.
Key Takeaways
- Japan cannot run out of yen for yen-based government payments.
- Public debt is also a financial asset held outside government.
- Government bonds do not provide Japan with money it cannot create.
- Higher interest payments become income for bondholders.
- Japan’s weak yen raises the cost of important imports.
- Inflation reflects real shortages and productive limits.
- Japan’s aging population creates resource challenges.
- The true limit on government spending is productive capacity.
- Austerity may weaken the economy it claims to protect.
- Financial power cannot replace workers, skills, energy, and production.
Source Commentary
This essay is a commentary on “Japan’s Economic Reality: A Harbinger of What’s to Come to the U.S.A.” by Ken McMullen.
Principles of Modern Monetary Theory
The MMT analysis draws from L. Randall Wray, Modern Money Theory Explained, Warren Mosler’s 20 Assertions, Unlocking Prosperity: How Modern Monetary Theory Redefines Economic Possibility, and MMT101.org 70 Principles. These sources explain currency sovereignty, public debt, government spending, taxation, inflation, sectoral balances, and real resource limits.
Tags
#Modern_Monetary_Theory #Japan_Economy #Public_Debt #Economic_Policy #Currency_Sovereignty
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