Japan periodically attracts a lot of attention for all the wrong reasons. There is no question that Japan has a large debt. The question though is just how serious the 'crisis' is. I would suggest the problem is serious, by there are authors who envisage a dire crisis. Such authors conjure up a dire scenario where Japan is left with the sole inevitable need to raise interest rates, and that this will of course force up interest rates around the world. Think again.
Almost all of Japanese indebtedness is to the Japanese people. The implications are several:
1. Japan can simply raise taxes to reduce debt. This is not attractive when you are trying to encourage spending, but its not impossible when you have little choice. The GST seems to be the most popular choice, but I would not be surprises to see a land tax.
2. Japan can reduce public spending to reduce its debt obligations. This is not easy for a social democratic party, however its an option, particularly if its an efficiency drive.
3. Japan can print money to repay debts. This is easy because all the debt is Japanese, so no forex implications.
4. Japan can boost immigration. This is not a popular policy, but in some point in the future, people might accept it. I doubt it, but it remains an option. The reason is because, unlike the rest of the world which accepts immigration as an easy way to artificially stimulate domestic economic activity, Japan does it the 'real way'. Don't give the Australian govt kudos for strong economic growth when the population is growing at 2% because they doubled immigration numbers.
5. Japan can keep working harder. I really don't believe Japanese employment numbers. In any respect, a great many people in the economy are under-employed, or under-utilised. This is particularly the case with women, who remain boxed in glass ceilings, if not padded cells. There is however a huge challenges retaining these people to make them productive. I think mothering is perhaps the most likely option. :) Some of them seem pretty useless. Its hard to believe the 'real workers' can work longer hours, so I guess its more outsourcing low-value labour to China and working more efficiently. Less drinking for them, which means more for me. Sorry I'm not there!
Personally, I suspect they will do all of these to some extent.