Here's a quick look at why people are scrutinizing Japanese sovereign debt. Japan has been able to rack up a massive debt load (expected to hit 228% of GDP this year) by selling JGBs to its own banks, insurance companies, and citizens. These lenders have allowed interest rates to stay at a very affordable near-zero percent. But with a debt so large, even a small increase in interest rates would start to eat up an unsustainable amount of the country's revenues.
Certainly there's an argument to be made that this situation is unsustainable. According to a report from Standard & Poor's, Japan's aging population will push the institutions that hold the most government debt -- domestic life insurance companies and the Government Pension Investment Fund -- to become net sellers to support pension-related costs.
The demographic shift will someday force the country to borrow from foreign buyers, who will likely charge higher interest rates that Japan can't afford to pay. And then you have your debt crisis.
But there are two reasons that the earthquake may not trigger a sharp rise in yields.
First, the quake is unlikely to force insurance companies to make massive payments for earthquake damage, since only about 18.5% of Japanese households have earthquake insurance,
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Second, Japan holds more than 95% of its own debt, according to Bank of Japan data. Even if foreign investors began to unload their bonds, they account for a small part of the overall market.