It most definitely affects the currency, and the currency of course affects trade.<p>The core difference between internal and external debt - or more precisely debt denominated in a country&#x27;s sovereign currency vs. foreign currency - is that a country can typically always avoid defaulting on domestic debt by printing more money, despite typical &quot;independence&quot; of central banks. Rates on domestic debt can also be controlled in a similar way.<p>The Japanese Central Bank is currently undertaking a quantitative easing program of gargantuan proportions, which basically means that they create new money every month and use it to buy Japanese government bonds. They are, albeit indirectly, creating money and loaning it to the government, which then uses it to run a large deficit. Government social programs are significant. The effect on the currency has been dramatic, with the JPY depreciating nearly 40% over the last three years versus the dollar. The central is bank is expected by many analysts to expand the program in the near future.<p>Although the stated intention is to generate inflation, a cynic might suggest that without such massive buying by the central bank, the governments enormous debt load would soon be at risk of becoming unsustainable - JGB interest rates could easily become unserviceable as investors become more concerned.