Japan: A sovereign debt crisis is not imminent but risks remain. | Eurobank
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Japan: A sovereign debt crisis is not imminent but risks remain.

• Large financial surpluses of the Japanese private sector since the burst of the asset price bubble two decades ago, coupled with strong home bias, has helped finance sizable public budget deficits and a huge public debt. As a result, despite overstretched public finances, market concerns about sovereign risk remain muted.
• A depletion or reallocation of private sector’s savings would force the government to turn to foreign lenders. Foreign investors would most likely require higher returns due to the size of the debt and to compensate for the currency risk, increasing the risk of a negative “snow-ball” effect on debt dynamics.
• While a sovereign debt crisis is not imminent, massive debt accumulation and adverse demographic developments threaten the stability of the sovereign bond market in the longer term....