Naoto Kan, in his first major speech since taking over, said Japan needed a financial restructuring to avert a Greece-style crisis.
"Our country's outstanding public debt is huge... our public finances have become the worst of any developed country," he said.
After years of borrowing, Japan's debt is twice its gross domestic product. For 20 years, the government has been borrowing to spend, hoping to revive the stagnant economy, amassing the biggest debt-to-GDP ratio in the industrialised world. The Japanese themselves have been buying those bonds at low interest rates. But as Japan ages, the thinking goes, households will save less.
The Government will have to look abroad to borrow, and the higher interest rates demanded could tip the world's second biggest economy into the abyss. Now the new Prime Minister Naoto Kan has stepped into the debate in his first policy speech to the Diet, warning Japan could face similar debt problems to Europe.
But not everyone is convinced Japan, with its huge trade surplus, is doomed.
