Japan's so-called "exorbitant privilege" deserves another look—particularly when you dig into the outsized returns it's been pulling from its external balance sheet. Two economists recently revisited this phenomenon, and the findings are worth considering for anyone tracking global economic dynamics.

Here's the thing: Japan has managed to maintain this privileged position for years, but it's not a free pass. The country faces real constraints. Managing its debt burden while keeping inflation in check? That's the balancing act that determines whether this privilege sticks around or unravels.

Why does this matter beyond Japan's borders? Because currency privileges and balance sheet dynamics ripple through global markets—affecting everything from capital flows to asset valuations. When a major economy can extract excess returns from international financial positions, it reshapes how the rest of the world allocates capital.

The bottom line: Japan's ability to retain this economic advantage hinges on fiscal discipline and price stability. Slip on either front, and the entire equation shifts.