Japan’s financial markets are signaling caution, not just for Tokyo but for the global economy. The Bank of Japan (BOJ), once renowned for its extensive money printing, is beginning to reverse its significant interventions. In essence, Japan’s debt crisis is reaching a critical point.
Recently, the BOJ announced plans to divest from its substantial holdings in exchange-traded funds (ETFs), totaling over 79 trillion yen (exceeding $500 billion). This unprecedented move by a major central bank is causing significant ripples throughout global financial markets.
Moreover, there’s a larger issue at play. Japan’s national debt has surged to about 1,324 trillion yen, representing nearly 235% of its GDP. No other developed country is anywhere near this level. The yield on Japan’s 10-year government bonds is now above 1.6%, a peak not seen in decades.
As interest rates rise, Japan faces escalating costs just to pay the interest on its debt, not to mention the challenge of reducing the principal amount.
Why Japan’s debt dilemma matters for the U.S.
While Japan grapples with its enormous debt, the U.S. is poised to encounter an even greater challenge. As of September 2025, America’s national debt has surpassed $37 trillion, translating to over $100,000 per citizen and standing at approximately 120% of GDP.
In response, the Treasury has commenced repurchasing its own bonds to stabilize the market and manage borrowing costs.
There are discussions about the U.S. potentially adopting a Japan-style yield curve control, which would involve capping long-term interest rates to handle its debt load.
As Lyn Alden detailed in her “Nothing Stops This Train” thesis, reversing this issue isn’t straightforward: U.S. fiscal deficits are on autopilot, and political stalemates hinder substantial spending cuts or tax increases at present.
Both nations are confronting the harsh reality that their debts might never be fully repaid. In such an environment, confidence in paper currencies can wane. Consequently, more investors are gravitating towards tangible assets that can’t be arbitrarily printed, such as bitcoin or gold.
Alden’s thesis emphasizes that major economies are on a fiscal trajectory from which they cannot easily divert. In her assessment, and increasingly among discerning investors, assets like bitcoin are evolving from mere speculative investments to potential refuges during this era of relentless government spending and monetary policy intervention.
The big picture
What transpires in Japan transcends a regional crisis; it serves as a harbinger of the challenges faced by developed economies globally if they continue to mask deficits with central bank support.
Absent meaningful structural reform, the shift towards sound money could accelerate, and fissures in the global financial system could expand. This raises serious questions about the efficacy of the Fed and whether central banks should continue to exist. As Austrian economist Peter St. Onge noted:
“The Fed was sold as ending recessions, bank panics, and protecting the dollar. Instead, it delivered 15 recessions, 4 banking crises, and a dollar worth 3 cents.”
Japan’s debt narrative serves as a stark reminder of the stakes involved for advanced economies precariously positioned on fiscal thin ice. With the burden now approaching $9 trillion, Japan’s balancing act is becoming increasingly difficult, especially as interest costs rise and investor wariness grows. As the world observes, Japan stands as a cautionary tale for all nations tempted to borrow without restraint.
