TOKYO (Reuters) - Capital flight, soaring borrowing costs, tanking currency and stocks and a central bank forced to pump vast amounts of cash into local banks -- that is what Japan may have to contend with if it fails to tackle its snowballing debt.
Not long ago such doomsday scenarios would be dismissed in Tokyo as fantasies of ill-informed foreigners sitting on loss-making bets "shorting Japan".
Today this is what is on bureaucrats' minds in Japan's centre of political and economic power.
"It's scary when you think what could happen if there's triple-selling of bonds, stocks and the yen. The chance of this happening is bigger than markets think," says a senior official.
Leaning back in a leather sofa in his office, the official appears relaxed, but the way he wastes no time answering questions about a debt meltdown suggests it is an all too familiar topic.
The official, like many others interviewed by Reuters, declined to be named because of the sensitivity of the subject and his alarm over Japan's $10 trillion-plus debt overhang has yet to be reflected in public debate or action. But these officials would be the ones pulling the levers in the command center if Japan were to be hit by a debt crisis.
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The government borrows more than it raises in taxes, and its debt pile amounts to two years' worth of Japan's economic output, the highest debt-to-GDP ratio in the world.
It costs Japan half of the country's tax income just to service its debt. Each year, Japan's debt level increases by more than the combined gross domestic product of Greece and Portugal.
Yet Prime Minister Yoshihiko Noda's plan to double the 5 percent sales tax to 10 percent over the next three years is seen as far too timid to stop debts from piling up.
Furthermore, he has yet to win over many in his own party and half of the public while the opposition threatens to scupper the plan, which it supports in principle, to force snap elections.
Technocrats who might have once dismissed worst-case scenarios are now beginning to take them seriously as doubts grow over whether Japan is ready to act and as Greece's budget meltdown stokes the euro zone's debt crisis.
Conventional wisdom is that Japan is safe as long as it keeps covering about 95 percent of its borrowing needs at home. What emerges from a dozen or so interviews with fund managers and officials versed in monetary and fiscal policy is that a risk of domestic investors going on a strike is what makes them particularly nervous.
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