It's hard to see Japan facing any kind of liquidity crunch that would rile the global markets in the short term. But that could change unless the ruling Liberal Democratic Party starts coming up with a sensible round of spending cuts, makes some tough decisions on pension benefits, and loses its penchant for ineffective public-works projects. Nobody is really talking about that sort of fiscal reconstruction. It's typical of the unimaginative policies that have been around Tokyo since Japan's bubble burst in the early 1990s. It has certainly been a boon to the LDP's loyal followers in the construction industry, but it hasn't done much for the broader economy.
Trouble is, it has probably made things worse.
They're frantic savers because they know instinctively that someday the government's IOUs need to be paid off. That will come in the form of tax hikes and maybe even pension-benefit cuts. Until consumers know the score, and see how fiscal reconstruction will affect their household budgets, they have no incentive to spend. In fact, it's a very rational response to a political class that has all the fiscal discipline of a Las Vegas high-roller. The good news is that Japan is finally getting truthful about the dimension of the problem.