why japan owned so much debt and can still purchase our country's debt?

When you say "Japan" has so much debt, you're referring specifically to the Japanese national government, which issues bonds.

When you say "Japan" purchases our US debt, you're referring specifically to Japanese individual investors, investment firms, corporations, and the Japan central bank, who all buy US Treasury bonds.

So you're talking about two different sets of entities doing two different things, and there's no conflict.

There are different kinds of debt, and the distinction is important, but both of the other answers are wrong about the distinctions.

1. The primary distinction is between the debt the government owes (a.k.a. public debt) and the debt the country as a whole owes to other countries (a.k. external debt)

Japan has a high public debt:

http://en.wikipedia.org/wiki/List_of_countries_by_...

but it has very low external debt:

http://en.wikipedia.org/wiki/List_of_countries_by_...

Among other things, this means that almost all of the Japanese government debt is owed to Japanese, not to other countries.

2. Then there is the distinction between gross debt and net debt. Japan owes other countries about $3 trillion. That is the gross external debt. But other countries owe Japan money as well. It is the difference between what it owes and what it is owed that determines the net debt. (As a matter of fact, Japan as a country has a negative net debt - it is owed more money than it owes.)

The same is true for public debt. The Japanese government borrows money from its people. It then turns around and uses some of that money to buy U.S. Treasuries. The net result is that its government net debt is much lower than its gross debt:

http://fatasmihov.blogspot.com/2010/03/gross-debt-...

Remember: if you take out a mortgage for $200K from a bank and then have a savings account worth $10K in that bank, the total (yours + the bank's) debt is $210K but the net debt is only $190K.

I guess you mean public debts which have to be divided into external and internal debts.You are correct that Japan has already public debts amount to 230% of GDP. But the debts mean an issue of government bonds to sell in the domestic market. The government bonds in foreign currency is about 8% of total government bonds which China is the biggest holder so far. On the other hand, the Japan's central bank has a handful of hard currencies, mostly dollar, because it has surplus current account.This currency reserves have been traded for Yen already. They cannot use in the domestic market anymore,but invest in foreign countries. In Japan and many countries in the world, the investment of foreign reserves is limited by law.Because it has to be used as a back up of local currency. So mostly, the law permits only to buy gold and AAA securities. US Treasury bill is in this category which secure enough to buy. In net term, Japan is a net international creditor still which means giving loans out more than borrowing.

It depends on what kind of debt you are talking about.

Here are the three playing factors here:

* National Debt - is the debt of the country's government to other country's government. This is usually affected by imports and exports, raw materials trade, etc.

* Public Debt - is the debt of an individual in the bank, or other building society. This is more likely to be credit cards, personal loans, mortgages, etc. Statistics combined, it makes up a rough assumption of the public debt.

* National treasury - The wealth of the country's government. This is where fundings for projects, r&d comes from. The more tax you get from people, the wealthier the government is.

Looking at Japan, their National treasury is huge that is why they could pay off us natl. Debt. In reality, they use this money to fund r&d in robotics, public transport improvements, health, education, tourism, etc. They also use this money to fund their military. And their military buys war machines from US, which benefits US economy. (But that's another story.)

Confirm wether you are pertaining to natl. Debt or public debt. I hope my answer helped you in a way though.

Japanese interest rate is almost zero, so essentially the government doesn't have to service their debt annually (ie, pay interest). Its left over money is just invested in US bonds.