The eyes of the financial world are on Greece and other heavily indebted euro-zone countries. But Japan is in even worse shape. The country's debt load is immense and growing, to the point that a quarter of its budget goes to servicing it. The government in Tokyo has done little to change things.
In recent decades, Japanese governments have piled up debts worth some €11 trillion ($14.6 trillion). This corresponds to 230 percent of annual gross domestic product, a debt level that is far higher than Greece's 165 percent.
...Experts warn that this system cannot go on for much longer. Takatoshi Ito, an economics professor at the University of Tokyo, says for example that Japan could become the "next Greece" if its government doesn't change course; the money, he says, will eventually run out. Ito and a colleague have calculated that even if the Japanese people invested all of their assets in sovereign bonds, it would only be enough to cover 12 years of state expenditures.
But who is supposed to come to Japan's rescue once that point has been reached? "If Japan is forced to go looking for investors abroad, a debt crisis will be unavoidable," says Jörg Krämer, the chief economist of Commerzbank, Germany's second-largest bank.
The man tasked with averting this disaster has his office in a building that looks like a fortress compared to the glass-and-steel skyscrapers surrounding it. The walls of the Bank of Japan, the country's central bank in Tokyo, are made of heavy, gray stone decorated with thick columns and gables.
....The prime minister wants to launch a massive new €91 billion ($120 billion) economic stimulus program, refuelling the Japanese economy with public investments in the construction sector.
Central bank chief Shirakawa himself seems unsure of the best way to respond. Four days after Abe's electoral victory, the central banker apparently caved and increased his emergency sovereign bond and securities buying program by a further €90 billion. Observers described it as a Christmas present for the imperious election winner.
...Nevertheless, warns Commerzbank economist Krämer, one shouldn't give short shrift to the potential dangers of the Japanese debt crisis. "The psychological effect could be the most dangerous one," he says. What would happen, for example, were investors to suddenly lose faith in other heavily indebted countries such as the US.
"Japan remains one of the world's biggest industrial nations, and the yen is an important currency for international monetary transactions," says Asia expert Gern. "If everything were to spin out of control, then the world would have a real problem."