China Rises Fast as Japan Loses Strength

China Rises Fast as Japan Loses Strength

Japan is now confronting one of the most dangerous economic moments in its modern history. A currency under pressure, a towering public debt load, and rising geopolitical risk are colliding. At the same time that China’s financial influence is expanding, and the global order is slowly shifting. In the decades after World War II, Japan was often held up as a model of stability, a disciplined society, worldclass manufacturers, and a central bank that seemed to manage deflation and aging with technocratic calm. For years, that image looked accurate from the outside. But what looked like stability was also a kind of frozen equilibrium built on conditions that could not last forever. Japan’s model depended on ultra- low interest rates, very low inflation, and a global trading system that let it import energy and raw materials cheaply while exporting high value industrial goods around the world. That combination allowed Tokyo to carry far more public debt than any other major advanced economy without triggering a crisis. Today that debt stands at roughly 2435 240% of GDP, the highest among major developed countries. For a long time, markets accepted this as an exception. They were willing to live with. Japan’s own investors held most of the debt. Inflation was muted and the yen was seen as a safe haven. But once global conditions changed, particularly after 2020, the weaknesses underneath that equilibrium became harder to ignore. The yen has fallen sharply against the US dollar over the past two years. At one point, losing around 10% of its value in a single year as the interest rate gap between the United States and Japan widened. A weaker yen makes Japanese exports more competitive, but it also makes imports, especially energy, much more expensive in local currency terms. For an economy that imports nearly all of its oil, gas, and coal, that is an immediate squeeze on households and industry. At the same time, Japan’s central bank has been boxed in by the very debt strategy that helped buy time in the past. The more debt the government issues, the more sensitive the system becomes to higher interest rates. If rates rise meaningfully, the cost of servicing that debt balloons, threatening the government’s budget, heavily indebted firms and households that grew used to cheap credit. That is why, even as other central banks were lifting interest rates to fight inflation, the Bank of Japan kept its policy rate around zero and used yield curve control to cap longerterm borrowing costs. Analysts described this as a kind of fiscal trap. The state must suppress yields to stay solvent. But suppressing yields puts pressure on the currency.

China Rises Fast as Japan Loses Strength

Japan faces a dangerous turning point as a weak yen, record debt and rising geopolitical risks collide with China’s growing financial power. This video explains how ultra-low interest rates, massive public borrowing and dependence on Chinese supply chains created a fiscal trap, why rare earths and tourism give Beijing leverage, and how a shifting, multipolar financial order is reshaping Japan’s options in the coming years, for markets, workers and families.

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