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Earthquake Will Increase Japan's Debt Burden: Rating Exec 

The tsumani that slammed into eastern Japan, following one of the largest earthquakes ever recorded, will make it even more difficult for Japan to deal with its already heavy debt burden, Sean Egan, founder partner and president of Egan-Jones Ratings Company, told CNBC on Friday.

Vehicles are crushed by a collapsed wall at a carpark in Mito city
Photo: Jiji Press | AFP | Getty Images
Vehicles are crushed by a collapsed wall at a carpark in Mito city

"We're concerned about Japan," Egan said. "The biggest early indicator is going to be their funding costs. They're funding at close to zero. I don't think they can sustain a normalized cost of debt. ... The biggest issue is the huge level of debt as percentage of GDP [gross domestic product]. For Japan... it's 240 percent, which is above and beyond any normal developed country."

Another factor to remember is Japan's largest trading partner is China, Egan went on to say.

"The question is if they are going to grow their way out of it. It's not obvious to us that they'll be able to do that," added Egan.

Currently, Japan is funding its interest rate domestically at a fairly low rate because the savings have been high, he said.

"But that savings rate has gone down from 18 percent in the early '90s to 2 percent as a result of the aging population. The population is going to continue to age, thereby putting more pressure on the overall savings and the interest that they are going to have to pay," Egan concluded.

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