Japan’s debt is already more than 200% of GDP, and Prime Minister Sanae Takaichi’s plans for fresh fiscal stimulus are expected to deepen the hole. With snap elections coming up Feb. 8, her opponent is also promising a similar agenda as economic growth remains muted.

Investors have started to balk, with JGB yields surging lately amid a string of weak debt auctions over the past year. Last month, bonds tumbled so much that yields spiked about 25 basis points in a single session, prompting Treasury Secretary Scott Bessent to call his Japanese counterpart as panic began to spread through global markets.

“Yet the JGB has unique features going for it, which limit the odds that the next debt crisis will be made in Japan,” Yardeni Research said in a note Tuesday, listing several reasons.

A key mitigating factor is that at least 90% of JGBs are held domestically, limiting the risk of capital flight. In fact, the Bank of Japan owns over half of all outstanding JGBs.

In addition, benchmark interest rates remain at a relatively low level of just 0.75% even after recent increases. Another reason keeping the JGB market stable is the array of reliable buyers. 

“For decades now, JGBs have been the main asset favored by local banks, corporations, local governments, pension funds, insurance companies, universities, endowments, the postal savings system, and retirees,” Yardeni wrote. “This mutually-assured-destruction dynamic dissuades most from selling debt.”

Japan also has extensive assets like foreign-exchange reserves that could theoretically be sold to retire some of its debt, while the Ministry of Finance has also demonstrated a knack for employing various tactics to cap yields, such as currency interventions and “rate checks.”

Still, Japan can’t take these advantages for granted indefinitely, Yardeni warned. The government has yet to tackle reforms that would ease the debt burden, improve productivity, and boost long-term economic growth.

“The longer Japan treats the symptoms of its malaise rather than its underlying causes, the greater the risk of a debt stumble,” it added.

Meanwhile, Robin Brooks, a senior fellow at the Brookings Institution, has been sounding the alarm for months that Japan is already showing signs of a debt crisis.

The reason why it’s not showing up yet in the JGB market is because the Bank of Japan is still buying massive amounts of bonds, keeping rates from spiking as high as they should. Instead of a surge in yields, markets are pricing in a debt crisis by sending the yen lower.

“Japan’s longer-term yields have been rising, but — on a risk-adjusted basis — that rise isn’t nearly enough to stabilize the Yen,” he wrote in December. “Another way to say this: markets think risk of a debt crisis is rising sharply. Yen depreciation won’t stop until yields are allowed to rise far more, forcing the government to pursue fiscal consolidation and bring down debt. Japan needs to stop being in denial.”