While Washington has been dutifully putting its financial house in order, Tokyo has been busy up-ending its finances. Talk about changing places. With the Japanese government forced to raise more and more cash, the flood of debt is pushing down bond prices and pulling up interest rates--in turn strengthening the yen. That'll crimp exports for sure, while higher rates will further cripple an economy reeling from deflation. It's hardly a recipe for economic revival.

A couple of months ago, Japan's economy seemed to be stabilizing. Now it's clear potholes still abound. One particularly troubling aspect is that Japan's much-vaunted national wealth is increasingly falling prey to bankruptcies and fire sales. Financial reserves--public and private--may not be bottomless after all. True, Japan boasts $1 trillion in net foreign assets. But about 80% of that is private direct investment by companies. Now, foreign holdings are being sold at a loss, and banks are busy selling off foreign-loan portfolios and treasury bonds to cover write-offs. The $220 billion in official reserves, held mostly in U.S. Treasuries, can't easily be unloaded without undermining the global financial system. So Japan's net creditor status may be of little use in a funding crisis.

The upshot: Expect Japan's economy, by hook or by crook, to finally open up to foreign investors. It's already happening, with GE Capital purchasing Japan's biggest leasing company, and other deals afoot. The pace is sure to accelerate, and Fortress Japan will be a thing of the past.

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