Japan's Public Debt at 240% of GDP Could Push Long-Term Rates to Double Digits Without BOJ Support

According to Robin Brooks, a Brookings Institution senior fellow and former Goldman Sachs FX strategist, on July 21, Japan faces a critical debt crisis. Brooks warned that without continued Bank of Japan (BOJ) purchases of government bonds, long-term interest rates could surge uncontrollably to double-digit levels above 10%.

With Japan's public debt reaching 240% of GDP, Brooks assessed that if BOJ market intervention is withdrawn, long-term interest rates could rise by at least 300 basis points from current levels. He argued that artificial interest rate caps remove appropriate risk premiums, triggering capital outflows and yen weakness. Brooks concluded that debt reduction is the only sustainable solution to end the currency depreciation cycle.