Reforming Japan's Government Bond-financed
Social Security System by Overcoming "Silver Democracy"

Japan’s social security system is entirely supported by the annual issuance of
government bonds, and the scale of these bond issues is expected to increase
continuously in the future. The social security funds which should provide a reserve
against the peak of the aging of Japan’s population in the first half of the 2040s have already begun to be accessed, and there is a possibility that they could be depleted
in around 20 years. Following the depletion of these funds, it will be necessary to
depend on additional issuance of government bonds for the same amount as had
previously been withdrawn from the funds each year. The recognition of this
possibility has the potential to undermine confidence in Japanese government bonds.

In order to avoid this situation and ensure that social security funds are maintained
until 2050, beyond the peak period of the aging of the nation’s population, it will be
essential to reduce current pension benefits. This will undoubtedly be difficult in a
“silver democracy,” in which elderly citizens possess considerable political power.
However, if those elderly citizens were to be made sufficiently aware of the high
degree of risk inherent in a pension structure in which benefits are dependent on the
issuing of government bonds, it would not be impossible to reach a consensus
regarding the stabilization of the pension system by reducing benefits. Conscientious efforts to ensure that the public is thoroughly aware of the risk in the current pension system will be an absolute precondition for the realization of such a consensus. To
this end, it will be necessary to establish an independent organization to conduct
accounting audits of public pension insurance, following the example of the U.S.
Financial Management Service which publishes the annual Statement of Social