US Steps In as Japan's Debt Burden Threatens Global Financial Markets

Japan's economy is facing a crisis due to its massive debt burden, which stands at around 204% of its GDP. The country's debt has been rising for decades, and investors are now worried that Japanese interest rates will rise to levels that might break Tokyo's budget.

The Bank of Japan (BoJ) has been keeping interest rates low through its radical monetary policy, but this has made the economy unsustainable in the long term. The country's economic stagnation over recent decades has led Tokyo to run endless budget deficits, which have added to its debt burden.

Prime Minister Sanae Takaichi has announced massive spending plans to boost economic growth, but these plans will further strain Tokyo's budget and add to its debt. Higher energy and commodity prices due to the Iran war are also adding to inflation in Japan.

The US is intervening in the yen's value for the second time since 1973, as it did during the Asian financial crisis in 1998, to counter 'disorderly movements' caused by concerns about Japan's creditworthiness. The joint Japanese-US support of the yen is likely only a short-term fix and policymakers are snookered because any decision risks backfiring.