Japanese government deficits set the stage for deregulation
During most of the post war period, the Japanese government had held its purse strings very tightly. From 1949 to 1964, the government had never run a deficit. This string of uninterrupted surpluses was broken in 1965 when the country issued a small number of bonds to raise the country out of a sharp recession. The economy recovered, but deficits continued at a moderate rate until 1975. After growing accustomed to deficit spending during the late 1960s and early 1970s, officials found the oil shock to be a convenient excuse to issue 10-year government bonds on a massive scale.
In 1975, outstanding government debt totaled ¥16 trillion, but by 1980 it had ballooned to ¥72 trillion, and by 1985 it had grown to ¥137 trillion. These bonds became a national burden. In 1987, government bonds outstanding represented 43 percent of GNP, and debt servicing costs in 1987 exceeded the annual expenditure for social security. Initially the Japanese government essentially forced banks to buy the debt at below market rates, but by the 1980s the banks had begun to balk. The situation reached a climax in the mid-1980s when the government had to issue new bonds for continuing deficits and had to rollover the bonds that it had issued 10 years earlier.