Eli5: How can some country have trillions of dollar in debt like Japan but still functional without any consequences?

Question

Eli5: How can some country have trillions of dollar in debt like Japan but still functional without any consequences?

In: 101

Answer 1

Depends to whom it is owed. Japan has a low level of external debt, so most of this is money owed to themselves. They control the rate they pay it down. At current rates (under 1% on 30 year bonds) the interest burden is low, so as long as the Japanese economy grows as fast as the interest rate (it’s averaging around 2% over the last 30 years), it’s manageable. If you owe in foreign currencies you have a problem.