Potential "solutions"

    These types of problems typically don't end well, but as cures, austerity measures, if implemented, could actually help counteract all the drag Japan's massive debt creates on GDP growth. Unfortunately, the Japanese government is moving in the exact opposite direction of austerity, choosing instead to lever up incrementally and "stimulate" the economy more.

    One of the key problems with Japan is that the bulk of investment over the past twenty years has gone to the manufacturing sector, with capital and R&D spending in more domestic-oriented sectors lagging (healthcare, IT, retail services, etc). This is a serious impediment to growth going forward as Japan transitions into a non-saving, consumption economy. Less funds will be available for investment than ever before at a time where they are needed most, particularly since Japan is not a big target for foreign investment to begin with.

    Also, high corporate tax rates, unfavorable tax policies, and just pure policy uncertainty will weigh on business and consumer confidence and investment spending. These policies also raise the bar which entrepreneurs must leap to get new businesses—sources of jobs and tax revenue—going. Reforming tax policies to benefit the corporate sector could go a long way towards stimulating future growth.

    Of course, continuing the vicious cycle, the government needs revenues badly right now. Handing out tax breaks would likely exacerbate the situation. It's hard to see where Japan can find the political wherewithal or the acumen to get out of its own way. If it can't, the country may have to follow the path of so many of the European ones before it, and turn hat in hand, to international institutions, for a rescue.