As its current-account surplus fades into deficit, Japan will be forced to import money at high international rates to finance its government debt. Huge amounts of money creation by the Bank of Japan could temporarily postpone the ensuing debt death spiral.
Monetary easing, however, won’t help Japan address the challenges presented by its rapidly aging population, which will result in restraints on consumption that slow growth and increase the cost of government-debt service as a share of gross domestic product. Furthermore, retirees are consumers, not producers, of goods and services, putting additional strain on those still working to produce enough for their own needs and for the elderly.
Read the rest of the story: Strong Yen Won’t Survive Japan’s Fiscal Cliff.