Japan's Looming Economic Crisis: High Debt, Inflation, and Global Impact

Japan's Economic Tightrope Walk: High Debt, Rising Inflation, and Global Implications Japan's economy is facing a confluence of challenges. The country's debt-to-GDP ratio has ballooned to nearly 260%, the highest among advanced economies. Simultaneously, inflation is rising, creating pressure on the Bank of Japan (BOJ). The BOJ's yield curve control policy, designed to keep borrowing costs low, has been a key factor in the debt accumulation. However, as prices rise, bond investors are demanding higher yields, potentially triggering an unwinding of the yen carry trade. "The Japanese economy is on the brink of a major shift and it could bring the US markets down with it," states the video's author, Quarter Chart. This is due to the yen carry trade, where global investors borrow cheap yen to invest in higher-yielding US assets. If Japanese yields continue to rise, these investors may sell US assets to repay their yen loans, potentially impacting the US markets. Despite the risks, Japan possesses two significant advantages. Over 50% of its debt is held by the BOJ, theoretically allowing the central bank to print money to service the debt without relying on markets. Furthermore, almost all of Japan's debt is denominated in yen, reducing the risk of currency devaluation compared to countries with foreign-denominated debt. While Japan may not face an immediate collapse, the ripple effects of rising Japanese yields could have significant global consequences. The situation warrants close monitoring by economists and investors worldwide.