Perspectives on Japan’s Continuing Exorbitant Privilege

With renewed doubt about the scale, scope, and even the sign of the dollar’s “exorbitant privilege,” we revisit Japan’s case, in particular, the persistent excess return on its external balance sheet, which derives in part from its ability to issue safe government debt at scale. Retaining this privilege is conditional, however, on Japan managing its debt dynamics and keeping inflation under control.

English version is available as PIIE Working Paper 25-22, “Perspectives on Japan’s Continuing Exorbitant Privilege” (Peterson Institute for International Economics, December 2025).
https://www.piie.com/publications/working-papers/2025/perspectives-japans-continuing-exorbitant-privilege