Is Japan, the "World's Largest Debtor Nation," Really in Danger? — From the Burst of the Bubble to the End of the Yen Carry Trade

1. The Striking Label of "The World's Largest Debtor"

Japan's government debt stands at approximately 2.4 to 2.5 times its nominal GDP, a level that is outstanding even among developed countries.Trading Economics

Phrases like "debt exceeding 1,000 trillion yen" and "a burden of ○○ yen per person" have been repeatedly mentioned in news and on social media.

However, a recent explanatory article compiled by an Indian economic media outlet does not simply stir up the magnitude of the numbers,

• but rather explains why the debt has ballooned to this extent

• and what impact it has had on the global financial markets

• and whether it is truly a "crisis"

through three questions, explained in the context from the 1990s to the present.NDTV Profit

Here, while referring to that perspective, we will look at the "debt" of Japan and the world as flatly as possible.

2. It All Started with the Bubble Burst

In the late 1980s, Japan was in an era where it was believed that stock prices and land prices would "continue to rise."
Low interest rates, excessive lending, and optimistic expectations combined, causing the Nikkei average and real estate prices to inflate nearly threefold in real terms from 1985 to 1989.NDTV Profit

However, when the bubble burst in the early 1990s, companies, financial institutions, and households all simultaneously entered "debt repayment mode."
As a result:

• Companies prioritized repairing balance sheets over investment

• Households prioritized savings over consumption

• Financial institutions were preoccupied with handling bad debts, making it difficult to take risks

As the entire economy went into "defensive mode," growth rates stagnated, and prices trended downward. This marked the entrance to the so-called "Lost 30 Years."

3. The "Debt Dependency" Born from Deflation and Low Growth

Prices did not rise, and wages did not grow—deflation continued to chill the mindset of companies and households.NDTV Profit

• Companies: Cautious about investment due to difficulty in raising prices

• Workers: Suppress consumption due to future uncertainties, increasing savings

• Government: Repeated economic measures such as public works and tax cuts to support the economy

However, if growth remains weak, tax revenue does not increase.

To cover economic measures and social security costs, the government has no choice but to rely on issuing government bonds (i.e., debt).

Furthermore, Japan is one of the most rapidly aging countries in the world, with expenditures on pensions, medical care, and nursing care increasing year by year.
The fiscal situation is

Economic measures (increased spending) → Tax revenue shortfall → Increased issuance of government bonds → Monetary easing to keep interest rates low → Growth remains weak → Economic measures again…

caught in a loop, resulting in the debt balance snowballing.NDTV Profit

4. The "Exported" Ultra-Low Interest Money and Yen Carry Trade

As a side effect of keeping interest rates at ultra-low levels, an unexpected "export product" was born.
That is theyen carry trade.

• Borrow money in Japan at almost zero interest

• Invest that money in higher interest-bearing overseas bonds or stocks

This simple method has been pointed out as a factor in Japanese money flowing into bond markets worldwide, pushing down interest rates in various countries.NDTV Profit

In fact, Japan has long been the **world's largest net creditor nation (a country where the money it lends to the world exceeds the money it borrows by the largest scale)**, and Japanese investors and institutional investors have been major customers of government bonds worldwide, including U.S. Treasuries.Wikipedia

In other words,

domestically, Japan is a "debt-ridden nation"
while from overseas, it is seen as one of the "world's largest creditors."

It holds these dual identities.

5. What Is Beginning to Change Now—The Turning Point of Rising Interest Rates and Yen Carry

However, entering the 2020s, the situation has slowly begun to change.

• With post-COVID price increases, there have been more instances where Japan's inflation rate exceeds 2%

• The Bank of Japan lifted its negative interest rate policy, and long-term interest rates have gradually started to riseWikipedia

• As Japanese government bond yields rise, the "appeal of investing in overseas assets while taking on exchange rate risks" begins to wane

This has led to the long-standing yen carry trade being described as "the beginning of the end."NDTV Profit

Additionally, in 2025, to respond to high prices and sluggish economic growth, the Japanese government decided on a large-scale economic package exceeding 21 trillion yen, supported by an additional budget (mostly new government bonds).AP News

It is only natural that questions like "Why increase debt again when interest rates are rising?" are erupting both domestically and internationally.

6. How Dangerous Is the "World's Largest Debt"?

Let's take a moment to organize the numbers.

• The gross debt balance of the general government is estimated to be around 240 to 250% of GDP, an outstanding level among developed countriesTrading Economics

• On the other hand, the net debt, after deducting financial assets held by the government and public institutions, is estimated to be around 140% of GDPSSGA

• Japan's long-term debt balance is expected to exceed 1,300 trillion yen, but much of it is long-term and fixed-rate, with an average remaining maturity of about 9 yearsMinistry of Finance

• About 90% of government bonds are held by domestic investors, with a significant proportion held by the Bank of Japan, domestic banks, and insurance companiesWikipedia

This structure differs in nature from crises triggered by a sharp increase in external debt, such as in Greece.
In cases where government bonds are heavily held by foreign investors, a loss of confidence can lead to rapid capital outflows, whereas Japan has a strong "domestic lending and borrowing" aspect.

Of course, this does not mean we can be completely at ease,

• as continued interest rate increases will undoubtedly lead to a heavier future interest payment burden

• With further aging, social security and interest payment costs will squeeze the budget, reducing funds available for growth investment

• If politics continues to avoid the pain of tax increases or spending cuts, there is a possibility that confidence may eventually be shaken

These risks remain.

Nevertheless, it is also true that rating agencies still assign an "A" rating to Japanese government bonds, far from an evaluation of "imminent bankruptcy."Wikipedia

7. Three Perspectives Circulating on Social Media

So how is this situation perceived on social media?
Looking at X (formerly Twitter), YouTube, TikTok, etc., it seems that three major "narratives" are unfolding simultaneously.

① Pessimists: "Don't Pass the Burden to the Next Generation"

The most noticeable are posts that stir up future anxiety with shocking numbers.

• "Debt of ○○ yen per person, it's already unpayable"

• "Even with tax increases, it's a drop in the bucket; will we keep printing until bankruptcy?"

• "The weak yen and inflation are all because of the national debt"

Comments with such tones tend to spread easily due to their compatibility with social media algorithms.
They resonate with the simple sentiment of "not wanting to leave a burden on the children and grandchildren's generation," gathering much sympathy and "likes."

② Realists: "Debt ≠ Evil"

On the other hand, from users with a high interest in economics and finance, calm observations like the following can