Credit rating agencies are growing impatient with Japan’s inability to tackle its ballooning public

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debt, a task just made more difficult by the ruling party’s drubbing in upper house elections at the weekend.

The result means that Prime Minister Naoto Kan’s ruling coalition lost its parliamentary majority so will need help from other parties to get bills, such as on tax reform, passed.

Greece’s debt problems have highlighted the fiscal woes of Japan, but is the world’s second-biggest economy really facing a Greece-like debt crisis?

How bad is Japan’s fiscal position?

By certain measures, Japan’s debt load is worse than that of Greece. Japan’s outstanding long-term government debt is set to reach ¥862 trillion ($9.72 trillion) at the end of March 2011, or 181% of the country’s gross domestic product, the Ministry of Finance says. If short-term debt is added, Japan’s liabilities will hit 197% of GDP this year and 204% in 2011, the highest among advanced economies and far worse than Greece’s debt-to-GDP ratio of around 130%, OECD figures show. Similarly, IMF warned in May that Japan was growing more vulnerable to sovereign risk, estimating the country’s gross debt-to-GDP ratio at 227% in 2010.

Why does Japan have so much debt?

Tokyo’s debt burden is a legacy of massive government spending in the 1990s to support the economy as it stagnated following the bursting of an asset bubble. An ageing population has meant rising social welfare costs add considerably to government spending.

Some analysts say Japan’s net debt provides a more accurate picture of the country’s indebtedness. This measures gross debt minus government assets such as public pension fund reserves and foreign reserves. On that basis, debt will reach around 105% of GDP in 2010, the highest among major economies, the OECD says. Still, some analysts say Japan would not be much worse off by that measure than Belgium and Italy were in the 1990s, and both nations avoided a sovereign debt crisis.

Will Japan default on its government debt?

Unlikely. Japan has a massive pool of domestic deposits to draw upon to fund its debt issuance. Japanese household assets total some ¥1,400 trillion ($15 trillion), some three times bigger than economic output and so providing a healthy pool of savings that can be funnelled into Japanese government bonds.

The government has almost no foreign currency-denominated debt obligations and more than 90% of Japanese government bonds (JGBs) are held by domestic investors. Greece’s profile is the opposite. About 70% of its sovereign debt is held by foreign investors. Japan also has other avenues to raise funds. It is the world’s largest creditor nation, with net external assets of ¥225.5 trillion. Unlike Greece, it enjoys a steady flow of foreign earnings from a current account surplus. The yen’s status as a key international currency also helps Japan access external liquidity and markets, and the ratio of Japan’s tax burden to national income is one of the lowest in the OECD, leaving it room to raise taxes.