Economists warn that the "Japanese debt crisis" is on the verge of explosion, and investors may turn to Crypto Assets for hedging.

Economists warn that not only is the United States facing severe debt pressure, but Japan's debt crisis is also on the brink of explosion. They caution that Japan's government debt to GDP ratio, which has reached as high as 240%, combined with inflationary pressures and the risk of yen depreciation, is pushing this major global economy into a dangerous situation. (Background: Is the yen finally set to rise from its bottom? Wall Street hedge funds "massively buy the dip on the yen" betting on exchange rate appreciation) (Background: Trump's "Big and Beautiful Act" narrowly passed, IMF warns: U.S. deficit debt crisis intensifies) Robin Brooks, a senior researcher at the Brookings Institution and former chief economist of the Institute of International Finance (IIF), pointed out in a post on Substack on September 15 that not only is the U.S. facing severe debt pressure, but Japan's debt crisis is also on the brink of explosion. He warned that Japan's government debt to GDP ratio, which has reached as high as 240%, coupled with inflationary pressures and risks of yen depreciation, is pushing this major global economy into a dangerous situation. The Dilemma of Japan's Debt Crisis Brooks noted in his analysis that Japan's public debt to GDP ratio has long been the highest among developed economies, achieving 210% as early as 2010, and now climbing to 240%. Following the COVID-19 pandemic, massive fiscal spending globally has led to a decrease in investors' tolerance for high debt, making Japan's situation particularly severe. Since mid-2022, Japan's consumer price index (CPI) has shown inflation rates soaring to levels not seen since the 1980s, further increasing borrowing costs. Brooks emphasized that Japan is facing a dilemma: if it maintains low interest rate policies, it may lead to further depreciation of the yen and uncontrolled inflation; if it raises interest rates to stabilize the yen, it may jeopardize debt sustainability and increase fiscal risks. He warned that this "dilemma" means that "the debt crisis is closer than people think." Furthermore, the Bank of Japan is also trying to reduce its massive holdings of government bonds, indicating that market concerns about Japan's fiscal outlook are worsening. If a debt crisis erupts, the yen could further depreciate significantly, domestic inflation could spiral out of control, and even lead to turmoil in global financial markets. Brooks stated that the only long-term solution is for Japan to cut fiscal spending or raise taxes, but this requires public acceptance and may face social and political challenges. Debt Concerns Boost Demand for Crypto Assets In this regard, CoinDesk reported that Japan's escalating debt concerns may prompt investors to seek alternative financial hedging tools, especially crypto assets and stablecoins. For instance, the Japanese startup JPYC plans to launch the first stablecoin pegged to the yen this year, which is expected to attract investors seeking hedging investments. Additionally, Brooks mentioned that if the U.S. economy falls into recession, global bond yields may decline, providing Japan with a brief respite. However, this is only temporary, and the instability of traditional financial markets may further heighten investors' interest in crypto assets. Related Reports The Japan Financial Services Agency is reforming crypto tax: reducing to 20% and allowing loss carryforwards, promoting domestic crypto ETFs and yen stablecoins. Bitwise predicts: Bitcoin will surge to $200,000 by the end of the year, with the U.S. debt crisis being a major driving force. The "Trump market" opening ceremony has ended: observing how the market prices the debt crisis from the rise in term premiums. This article was first published on BlockTempo, the most influential blockchain news media.