It does make a difference in that Japan could finance the public debt entirely by itself. The country has a trade account surplus, it's not them being indebted to others, but others are indebted to them.

That makes it unattractive for speculators to bet against the country. Countries like China or Germany are in a similar position.

They have had a historically high internal savings rate that allowed this. One thing to keep an eye on is their terrible demographics. I believe Japanese citizens as well as the largest institutional buyers (Japan Post etc) have just recently become net sellers of JGBs as they move towards liquidation to fund retirements.

Japan currently funds more than half of their gov't via borrowing, with the demographic shift and the internal demand for JGB turning towards net negative, they will increasingly rely on external buyers of their debt. I believe China has been a buyer of late.

What has worked for Japan historically may not work so well going forward.

I've read that most of this money came from retiree savings, which are rapidly running out. Furthermore, the younger generation doesn't have such savings, yet alone the population, to keep such a thing going.

In a sense, this system of internal borrowing in a hidden tax. While it of course is not mandated, it's required in order to keep things going smoothly.

Indeed. That helps them postponing the problems but it doesn't make the debt-levels any more sustainable. http://www.youtube.com/watch?v=-quUyId2WZ0

Japanese debt is Yen denominated and, if they want, they can extinguish it by printing money. This option is not available to Greece/Italy/Spain/Portugal/Ireland.

But by printing money they'd wipe out (or at least reduce) the real value of their peoples' savings - basically all those bonds the Japanese people bought. The consequences would be borne by their own people, not some foreign banks. This may be politically unpalatable.

There are limits to how much you can print without creating a currency crisis. http://en.wikipedia.org/wiki/Hyperinflation#Examples_of_hype...

You can pursue an economic policy that creates high levels of inflation without necessarily triggering hyperinflation. The goal of course would be to gradually inflate away the value of the debt, not to pay it all back immediately.

Wouldn't that wipe out the very same people who invested in Japan? There are a lot of regular Japanese people who hold Japanese debt. Wiping it out via inflation is equivalent to wiping out the wealth of regular Japanese people to save the Japanese government.