Japan’s debt is already more than 200% of GDP, and Prime Minister Sanae Takaichi’s plans for new fiscal stimulus are expected to deepen the hole. With the upcoming election on February 8, his opponent also promises a similar agenda as economic growth remains muted.

Investors are starting to balk, with JGB yields coming in recently amid a string of weak debt auctions over the past year. Last month, bonds fell so much that yields rose 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 to it, limiting the chances that the next debt crisis will take place in Japan,” Yardeni Research said in a note on Tuesday, listing several factors.

An important mitigating factor is that at least 90% of JGBs are domestically produced, limiting the risk of capital flight. In fact, the Bank of Japan owns more than half of all outstanding JGBs.

Moreover, benchmark interest rates remained at a relatively low level of just 0.75% even after the recent hike. Another reason that the JGB market remains strong 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 destructive dynamic prevents most of the debt sales.”

Japan also has large assets such as foreign exchange reserves that could theoretically be sold to retire some of its debts, while the Ministry of Finance has also shown a knack for using various tactics to suppress yields, such as currency interventions and “rate checks.”

However, Japan cannot take these advantages forever, 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 weakness instead of 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 this has not been seen in the JGB market is because the Bank of Japan is still buying large amounts of bonds, preventing rates from rising as high as they should. Instead of a surge in yields, markets are pricing in a debt crisis by sending the yen lower.

“Higher yields in Japan have increased, but – on a risk-adjusted basis – that increase has not been enough to strengthen the Yen,” he wrote in December. “Another way to say it: the markets think that the risk of a debt crisis will increase sharply. The depreciation of the Yen will not stop until yields are allowed to rise further, which will force the government to continue fiscal consolidation and lower the debt. Japan must stop being in denial.”