Japan is on the road to default because it is expected to incur an unsustainable debt burden of $1 trillion in protecting depositors from the collapsing banking system, according to a report released by a Washington-based think tank.
"The negative net worth of the Japanese banking system is somewhere above the yen equivalent of $1 trillion. When the banking system collapses . . . the Bank of Japan will need to inject at least $1 trillion into the banks to protect depositors from losses," says the latest issue of the Economic Outlook report by the American Enterprise Institute for Public Policy Research.
The report says the inability of the Japanese government and the BOJ to remove deflationary pressure will inevitably lead to the failure of one or several large banks, and ultimately to the failure of the entire banking system.
As the banking system collapses, the Japanese government will have to stave off additional losses of households and business depositors in the banks through recapitalization, it says.