Good read from The Economist on Japan.
The two paragraphs that I think our relevant to our bond market (and interest rates) in the United States:
One senior bureaucrat in the finance ministry returned from a G7 meeting in Canada in February, his ears ringing with worries about Greece—and, by extension, Japan. But he appeared to find it more wearying than alarming. “For years we have been hearing warnings that Japanese-government bonds are going to collapse. It’s like the doomsday view of the dollar,” he moaned. Pointing to a trading screen on the wall where ten-year Japanese bond yields were yielding a meagre 1.4%, he noted that the market was still holding firm (in Greece, yields were about 7% at the time). He believes that Japan still has plenty of room to avoid a fiscal implosion.
In the short term, there are grounds for sharing his confidence. In many sovereign-debt crises, the trigger is not the level of debt, but the government’s inability to finance it. In a recent IMF working paper, Kiichi Tokuoka notes that in recent years there has been scant linkage between Japanese government-bond yields and the size of Japan’s debt and deficits. Indeed, when net debt was less than 20% of GDP in the early 1990s, ten-year bonds yielded 7%. As the debt has soared, yields have moved in the opposite direction (see chart 2).