Even still, the debt is held by people who eventually expect to use it to find their retirements. They can avoid external driven shocks, but at some point a smaller population can’t produce enough care for a larger one. That will play out in the debt markets, either with defaults or inflation.
The BOJ has been trying to raise inflation for like 30 years now and has epically failed. Inflation will not be the problem. The velocity of money in Japan is criminally low.
It is going to be a problem because in an inflationary monetary system, you need to give out loans at a constantly increasing rate in order to pay off the debt of the previous generation.
If the new generation is not growing fast enough, they will not be able to afford to take out enough new debt to buy assets from the previous generation (thus allowing the previous generation to pay of their debts from the sale or lease of real estate), then prices could crash quickly when the previous generation starts defaulting on their loans.
It's also why real estate prices are so high in Japan. The older generation needs to squeeze out as much as they can from each member of the younger generation since there are so few of them in numbers.
You can buy a detached house in the Tokyo Metropolitan area for less than a 1 bedroom condo in Vancouver, Canada. An old house for significantly less. This broad observation is easily confirmed by browsing real estate listings.
E.g. random hit: small 3LDK house in Kashiwa built in 1981:
I suspect it’s a historical observation. They used to be crazy high. (I lived in Tokyo over a decade ago. Prices were crazy then, but they’re roughly the same now. Meanwhile SF has gone up at least 3X in that timeframe)
It’s the opposite, no? In an inflationary environment your debt is worth less. (More money is printed to pay it off) That’s why countries inflate it away.
