Historically, the advantage the Japanese government has had is that its own people and institutions have bought nearly all of its debt. That's critical because it's unlikely the rest of the world would accept the country's rock-bottom interest rates. But Japan's aging society now is cashing in savings to live, reducing potential demand for bonds and other fixed-income accounts, Weinberg said.
The dollar weakened slightly against the yen on Monday, to 81.63 yen per dollar from 81.84 on Friday. The yen hit a 15-year high of 80.40 per dollar in October, and has since traded in a narrow range.
Japan's central bank, in the first full business day since Friday's earthquake and tsunami, moved to inject $183 billion into money markets to try to stem the financial damage.
Although the quake's fury bypassed Japan's industrial heartland, the shock waves were felt from big auto plants to small mom-and-pop establishments. Many of Japan's leading companies, such as Sony Corp. and Toyota Motor Corp., closed some production facilities. The Nikkei stock average fell 6.2%, and the broader Topix index plunged 7.5% — their steepest daily declines since October 2008, when markets were seized with the global financial crisis.
In addition to Japan's poor fiscal condition, another key difference today compared with the aftermath of the 1995 Kobe earthquake is the damage to the nation's nuclear power industry.
Even if Japanese engineers avert a meltdown of nuclear reactors, the problem is likely to send economic ripples throughout Japan and then abroad.
"To the extent the Japanese grid is effected, that may put a drag on the economy longer term," said David Weinstein, a professor of Japanese economy at Columbia University.
"That's a challenge," said Hoshi, the UC San Diego scholar. "Japan needs more robust electricity capacity."
Photos: Scenes of earthquake destruction
Times staff writer David Pierson in Beijing and Kenji Hall in Tokyo contributed to this report.