Japan's so-called exorbitant privilege keeps generating outsized returns on its external balance sheet. But here's the catch—sustaining this advantage isn't automatic. The math is straightforward yet demanding: Tokyo needs to keep its debt trajectory sustainable while preventing inflation from spiraling out of control.

Think of it like walking a tightrope. One slip on either side—whether debt explodes or price pressures accelerate—and the whole advantage evaporates. The returns that have historically cushioned Japan's external position depend entirely on managing these two factors simultaneously.

This dynamic matters because when central banks and governments lose control of either variable, asset markets feel the shock. Whether you're tracking traditional equities or monitoring crypto volatility, understanding how major economies handle their debt and inflation equations is fundamental to reading market direction.