Economists: The risk of Japan's debt crisis may drive up demand for cryptocurrencies

ChainCatcher news reports that, according to economist Robin Brooks, Japan is facing a potential debt crisis, with its debt-to-GDP ratio reaching about 240%, further exacerbated by rising inflation and government bond yields. However, a U.S. economic recession may provide Japan with a brief window of relief by lowering global bond yields and easing fiscal pressure.

Brooks points out that Japan is currently in a dilemma: maintaining low interest rates could lead to further depreciation of the yen and trigger uncontrollable inflation; allowing yields to rise further to stabilize the yen could jeopardize debt sustainability. This predicament may drive investors towards alternative financial instruments such as cryptocurrencies and stablecoins.

Notably, Japanese startup JPYC plans to issue the first stablecoin pegged to the yen this year. Additionally, since 2021, the yen has depreciated by 41%, intensifying domestic inflationary pressures. Meanwhile, the yield on Japan's 10-year government bonds has risen from nearly zero in 2020 to 1.6%, the highest level since 2008, with the 30-year yield also reaching multi-decade highs, reflecting investor concerns over fiscal risks.

Brooks believes that a U.S. economic recession could temporarily lower Japanese bond yields, buying Japan some time. However, a long-term solution will still require cuts in spending or increases in taxes, but whether the Japanese public will accept these measures remains uncertain.