Crisis In Japan: Massive Debt Is Collapsing Japan’s Entire Economy, Protests Everywhere

Crisis In Japan: Massive Debt Is Collapsing Japan’s Entire Economy, Protests Everywhere

Japan’s government has released growth data for the first quarter of this year and the numbers show the economy has taken a step back. Japan’s uh three biggest names in the auto industry announced disappointing numbers for the last quarter of the business year and they’re warning of rough waters ahead. Rice prices in Japan remain stubbornly high. Consumers are struggling to put food on tables and retailers to put products on shelves at affordable prices. The government has been trying to fix the problem with limited success. Right now, Japan is facing what might be its most severe economic crisis since World War II. Angry protesters are gathering outside government buildings in Tokyo, shouting, “We are not your ATM.” Rice, the cornerstone of Japanese culture, has disappeared from supermarket shelves. Families are surviving on rice seasoning because they can’t afford proper meals. And in an unprecedented move that sent shock waves through global markets, Prime Minister Shigeru Ishiba is just publicly admitted that Japan’s financial situation is worse than Greees. Let me paint you a picture of what’s happening on the ground. Imagine living in one of the world’s most advanced economies. Yet watching your purchasing power evaporate as prices skyrocket while your wages stay flat. That’s the reality for millions of Japanese families today. Sales of furicake rice seasoning used to make plain rice more palatable are at all-time highs because that’s all many families can afford. When a nation that reveres rice can’t afford rice, you know something is fundamentally broken. But this inflation crisis is just the visible symptom of a much deeper disease. Right now, as we speak, Japanese bond yields are exploding upward in a way that’s sending shock waves through global financial markets. Japan’s debt to GDP ratio has crossed the terrifying threshold of 234.9% making it worse than Greece at the height of the European debt crisis. The Japanese economy is contracting and those angry protests there just the beginning. Let me read you Prime Minister Ishiba’s exact words because when I heard this quote, I knew this was a moment that would be remembered in economic history. Prime Minister Isha said, “It’s important to recognize the dangers of a society and a world with interest rates. The government is not in a position to comment on interest rates, but the reality is we are facing a world with them. Our country’s fiscal situation is undoubtedly extremely poor. Worse than Greece’s. Think about what he just said. The prime minister of the world’s fourth largest economy just admitted his country is in worse financial shape than Greece was during its debt crisis. That’s not political posturing. That’s a cry for help. But here’s what makes this even more alarming. While Greece’s debt to GDP ratio peaked at 142.2%, Japan is sitting at a staggering 234.9%. We’re talking about debt levels that are literally off the charts by any historical standard. This crisis has been building for decades. But something fundamental changed in April 2024. That’s when Japanese bond yields started going absolutely berserk. And when I say berserk, I mean the kind of movements that destroy financial institutions overnight. Let me paint you a picture of what’s happening in Japanese bond markets right now. The 40-year Japanese government bond yield, which had been dormant for years, suddenly jumped 11 basis points in a single session. But that’s just the tip of the iceberg. Since the beginning of April, this same yield has spiked an incredible 100 basis points, reaching 3.56%. To put that in perspective, that’s like watching a sleeping giant suddenly wake up and start thrashing around. When bond yields spike this dramatically, it means bond prices are collapsing. And guess who’s been hoarding Japanese bonds for years? banks, pension funds, and financial institutions all over the world. We are talking about potentially trillions of dollars in unrealized losses that are sitting on the balance sheets of major financial institutions right now. These are not theoretical losses. This is real money that’s evaporating as we watch. Meanwhile, Japan’s economy isn’t just stagnating, it’s actively shrinking. In the first quarter of 2024, Japan’s GDP contracted 0.2%, which was actually worse than the 0.1% contraction economists were expecting. On an annualized basis, the economy shrank 0.7%, again, worse than forecast. But here’s where it gets really interesting and really dangerous. Japan is caught in a perfect storm of economic pressures that mirror what happened to their economy in the 1990s, except this time the stakes are much higher. Let me take you back to understand how we got here. Japan’s economic miracle after World War II was legendary. By the 1980s, they had the highest per capita GMPP in the world. But then came the Plaza agreement back in 1985, creating a massive bubble that burst in the early 1990s. Japan entered the last decade, actually much longer than a decade. From 1991 to 2010, Japan’s GDP growth averaged less than 1% a year. But here’s the crucial difference between then and now. In the 1990s, Japan had much lower debt levels and much more room for fiscal and monetary maneuvering. Today, they’re trapped. The Bank of Japan has been buying government bonds for so long that they owe nearly half of the entire Japanese bond market. Interest rates have been at zero or negative for years. Government debt has exploded to levels that would have been unimaginable in the 1990s. Now, here’s where the global trade war comes in, and this is where things get really complicated for Japan. The Trump administration has imposed 25% tariffs on Japanese automobiles and Japanese auto parts, and they’ve made it clear that Japan will not be getting any special treatment. For Japan, this is an existential threat. The automotive industry isn’t just another sector of their economy. It’s the backbone. Japanese automakers have spent decades building integrated supply chains that span the globe. These 25% tariffs don’t just affect the final product. They affect every single component that goes into Japanese cars. Prime Minister Ishiba is caught in an impossible position. With elections coming in July, he can’t afford to look weak by accepting a bad trade deal. But he also can’t afford to let the trade war escalate further. The Japanese are pushing to negotiate away all tariffs, including those on automobiles, steel, and aluminum. But US officials have been crystal clear. Japan will not be getting special treatment. The 25% automotive duty applies to everyone. And here’s the kicker. Get this. Japanese officials are warning that if these tariffs remain, it could cause the entire Japanese economy to stall. This isn’t hyperbole. It’s a realistic assessment of how dependent Japan’s economy has become on automotive exports. But the trade war is just one piece of a much larger puzzle. Japan is also dealing with deflation. While the United States and Europe have been fighting inflation, Japan is battling the opposite problem. In 2024, Japan’s producer price index declined for 16 consecutive months. That might sound like good news, but economists call deflation economic poison. When prices consistently fall, consumers delay purchases, and businesses reduce investment, the entire economy grinds to a halt. Japan lived through this nightmare in the 1990s and 2000s, and now they’re watching it happen all over again. The demographic crisis makes everything much worse. Japan’s population peaked in 2008 at 128 million and has been declining ever since. They’re on pace to lose half their population by the end of this century. Let me say that again. They’re going to lose half their population by the end of this century. The working age population has been shrinking since 2011 and the pace is accelerating. It’s been estimated that this year over 300 million Japanese citizens will be over 60. That’s more than the entire population of the United States. But Japan doesn’t have the social safety net to support this aging tsunami. Most elderly Japanese depend on their children for financial support. But with the economy contracting and youth unemployment soaring, that support system is breaking down. Speaking of youth unemployment, this might be the most dangerous aspect of Japan’s crisis. In urban areas, nearly 20% of young people can’t find work. A record 11.8 million college graduates entered the job market in 2024 only to find their degrees virtually worthless. Others have given up entirely, retreating to their parents’ homes in what’s called lying flat. This is creating exactly the kind of social tension that brings down governments. And now adding fuel to the fire, we’re seeing something unprecedented in modern Japanese history. Mass protests against the government’s economic policies. Just last month, angry residents gathered outside the Ministry of Finance in Tokyo shouting, “Demolish the Ministry of Finance.” They carried signs saying we are not your ATM and mocking Prime Minister Ishiva. By Japanese standards where public descent is extremely rare, this represents the seismic shift in public sentiment. One protester posted on social media, “When I thought about the suffering of the people with children unable to eat three meals a day and sales of rice seasoning at an all-time high, I started screaming and crying. Japan is experiencing a domestic rice shortage that has caused supermarket shelves to empty and prices to double. Rice isn’t just food in Japan. It carries deep cultural, historical, and spiritual significance. The fact that people can’t afford or find rice is like Americans not being able to afford bread. Here’s what makes Japan’s situation so dangerous for the global economy. Japan is the world’s fourth largest economy and is deeply integrated into global financial markets. Japanese institutions hold massive amounts of US treasuries and European bonds. Japanese banks are major players in global lending markets. If Japanese financial system implodes, it won’t stay contained within Japan’s borders. We could see a global financial crisis that makes 2008 look manageable by comparison. Bond yields are also rising in the United States and Europe, which compounds the pressure on global financial institutions. When you have major economies simultaneously experiencing bond market stress, it creates the conditions for an unprecedented meltdown. The parallels to 2008 are eerie. Back then, the US experienced a major financial crisis and a major recession simultaneously. Japan appears to be headed for exactly the same fate, except with even higher debt levels and even less room for maneuver. But here’s what’s different this time. The global economy is much more fragile than it was in 2008. We’ve had over a decade of ultra low interest rates and massive money printing. Central banks have used up most of their ammunition. Government debt levels worldwide are at historic highs. In this environment, a Japanese financial crisis could trigger a domino effect that spreads around the world faster than anyone can respond. So what happens next? Prime Minister Ishiba leads a minority government that lost its majority back in October 2024. He’s facing elections in July where his political survival is at stake. He can’t afford to look weak, but he also can’t afford to let the economic crisis deepen. The problem is that Japan has very few good options left. They can’t cut interest rates further. They’re already at zero. They can’t print much more money without triggering currency collapse. They can’t cut spending without making the recession worse. And they can’t raise taxes without killing what little economic growth they have left. This is what economists call a policy trilmma. a situation where all your options are bad and the least bad option might still lead to disaster. Keep a very close eye on Japanese bond yields over the coming weeks and months. If they continue to spike higher, it’ll put tremendous strain on financial institutions worldwide that were counting on Japanese bonds as safe, stable investments. We’re watching a crisis unfold in real time that has been 30 years in the making. Japan’s last decades never really ended. They just got masked by massive government debt and central bank money printing. Now those chickens are coming home to roost. The question isn’t whether Japan will face a severe economic and financial crisis. It’s already happening. The question is whether this crisis will spread globally and whether the rest of the world is prepared for the economic earthquake that could result from the collapse of the world’s fourth largest economy. Things are moving very quickly now. What seemed impossible just months ago is now looking increasingly inevitable. Japan’s financial system is on the verge of a collapse that could reshape the global economy for decades to come. We aren’t there yet, but we’re getting closer every day. And when it happens, it’s going to happen fast. Please subscribe to Epic Economist and thank you for watching.

Right now, Japan is facing what might be its most severe economic crisis since World War II. Angry protesters are gathering outside government buildings in Tokyo, shouting “We are not your ATM!” Rice – the cornerstone of Japanese culture – has disappeared from supermarket shelves. Families are surviving on rice seasoning because they can’t afford proper meals. And in an unprecedented move that sent shockwaves through global markets, Prime Minister Shigeru Ishiba just publicly admitted that Japan’s financial situation is “worse than Greece’s.”
Let me paint you a picture of what’s happening on the ground. Imagine living in one of the world’s most advanced economies, yet watching your purchasing power evaporate as prices skyrocket while your wages stay flat. That’s the reality for millions of Japanese families today. Sales of furikake – rice seasoning used to make plain rice more palatable – are at all-time highs because that’s all many families can afford. When a nation that reveres rice can’t afford rice, you know something is fundamentally broken.
But this inflation crisis is just the visible symptom of a much deeper disease. Right now, as we speak, Japanese bond yields are exploding upward in a way that’s sending shockwaves through global financial markets. Japan’s debt-to-GDP ratio has crossed the terrifying threshold of 234.9 percent – making it worse than Greece at the height of the European debt crisis. The Japanese economy is contracting. And those angry protests? They’re just the beginning.