A Japanese debt crisis is closer than you think

As Kazuo Ueda mulls whether to hike interest rates this week, a powerful constituency is staring back at the Bank of Japan governor: the “bond vigilantes.” Very few think Ueda’s BOJ will hike rates on Friday, despite Japanese policymakers going out of their way to claim the rate “normalization” process remains on track.

The reason has less to do with tepid growth or lackluster consumer spending. Rather, it’s Tokyo’s titanically large public debt and the fact that investors are increasingly concerned about it. “Japan is much closer to a debt crisis than people think,” argues economist Robin Brooks at the Brookings Institution.

Estimates of the true magnitude of Japan’s debt-to-gross domestic product ratio range from 240% to 260%. Either or anywhere in between means Japan has the biggest debt burden by a wide margin in the developed world.

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