My Foolish colleague Morgan Housel began an article a few days ago by noting that, "Poor Cyprus is in terrible shape." The tiny Mediterranean nation virtually crept into that forlorn condition before most of us were aware of its difficulties. Of course, we'd known about the withering economies of Greece, Spain, and Italy. But now, unbeknownst to many, Japan, the world's third-largest economy, may also be headed for what would be a far more resounding crash.

Some Fools may recall the Japanese "bubble economy," which, before it came to an abrupt halt in 1991, was characterized by nosebleed values on real estate and stock prices. But, since that time, the country's economic circumstances have continued to wweaken.

Not pretty numbers
Today, Japan's government debt to GDP is a whopping and globe-topping 245%. Beyond that, its total debt to GDP is about 500%, while the Japanese government spends at a rate of 2000% of its revenues. As a result, evenamid at prevailing rock-bottom rates, its interest costs on the government's portion of its debt runs to nearly 25% of the same government's revenue. Largely as a result, from July through September, the country's economy was shrinking at an annualized rate of about 3.5%.

But that may be only a temporary phenomenon. Newly reinstated Prime Minister Shinzo Abe -- who in the past had held the same post under the auspices of the Liberal Democratic Party and was returned by the electorate in December -- apparently intends to undertake the quantitative easing (QE) approach that has become the apparent elixir for sluggish economies, whether in Europe or the U.S. In addition tied to an avowed object of turning Japan's deflationary economy into one that sports about a 2% growth rate. Further, "Abenomics" also includes "structural reforms," including a round of deregulation.

Another prescription from Abe's crew clearly involves letting the yen slide. Indeed, the currency has been lowered by 20% during just the past four months. That decline has essentially occurred under the cover of darkness, without generating any real attention. Its clear intent is to benefit the likes of the Japanese automobile manufacturers and other areas of industry. (This, despite Toyota's (TM 0.05%) having recaptured the automotive world's top spot from General Motors (GM 4.37%) in 2012, while rival Honda (HMC 0.09%) recorded a 24% hike in U.S. sales for the year.)

Predicting problems
the face of the country's dicey economics, however, and despite the ministrations of Abe and his minions, there are numerous Asia-watchers who have become convinced that an economic tumble for Japan is inevitable and possibly imminent. For instance, longtime Japan observer and Asian securities specialist James Gruber maintains that, a yield that expanded to 2% would result in the interest portion of the government's debt absorbing a clearly unsustainable 80% of its total revenues.

Also, the Dallas-based founder of Hayman Capital Management, Kyle Bass -- one of the early seers of the 2007-2008 U.S. mortgage market collapse -- believes that the government's debt-to-revenue ratio has reached a level where a financial collapse is now inevitable. In fact, he contends that meeting the 2% inflation target would play a lead role in precipitaing an economic cataclysm.

In a recent address to Booth's Initiative on Global Markets in Chicago, Bass provided more empirical reinforcement for his dire forecast. As he noted, a big (albeit unnamed) bank recently owned up to him that its latest stress analysis of the Japanese economy had yielded results eight times more foreboding than the immediately preceding version.

The Halls of Harvard
And then there's Martin Feldstein, the George F. Baker Professor of Economics at Harvard and former chairman of the Council of Economic Advisers under President Ronald Reagan. His primary prognostications about Japan's economy also point to deleterious consequences from an erasure of its most significant current advantage: low interest rates. Similarly, the yen's recent weakening, along with the likelihood of altered expectations among investors in the nation's government bonds, could usher in a higher-than-the-targeted 2% inflation rate, thereby unleashing additional economic damage.

It already appears that Japan's teetering economy has metastasized to other nations in the region, most notably South Korea and Taiwan. Add to that the somewhat shocking U.S. Federal Reserve study released this week, which concludes that China's economic growth rate could slide to between 6.5% and, under a "worst-case scenario," below 1% by 2030. As with Japan, China is beset by a low reproductive rate and a consequently aging work force.

To my mind, the economic weakening in Asia -- and especially in Japan -- are infinitely more foreboding and portentous than even the worst of the difficulties challenging the EU. Indeed, a Japanese collapse -- with or without concurrent events in other nations in the region, even including China -- could render dealing with Grecian, Italian, Spanish, and Cypriote woes a veritable cakewalk.