Japan’s debt level is in a league of its own. With estimates that Japan’s gross debt to GDP will reach 228% (before the earthquake), it is over twice the level of the United States. The devastation from the Earthquake is predicted to reduce Japan’s GDP by 2-3%. According to Robert Peston:
The sum that Japan needs to borrow this year is the kind of number that boggles the brain: if you add together both the maturing debt that needs to be repaid and new borrowing to finance the deficit, Japan needs to borrow around a third of its $5.5 trillion GDP, excluding very short term debt, or more than half its GDP including short term debt.
Japan has continuously been able to raise money through debt sales primarily because its own population has been willing to purchase the debt. The question really becomes whether there is a tipping point, especially when these same citizens need funds to rebuild their own houses and businesses.
Whether Moody’s and S&P will look the other way because the extra burden was caused by a natural disaster is a moot point because the credit default swap market has already lost faith in the Land of the Rising Sun: