[RightWhale]

There might be a linkage between the gov't deficit, interest rates, and the real estate bubble.

The deficit will have to be covered by issuing bonds, the bonds will sell better with higher interest. With higher interest, real estate loans will be more expensive. More of the cost of real estate will be in interest, less on the principal. Real estate principal cost will have to be reduced or real estate purchases will be reduced, fewer customers. Those who pay cash will be pleased.

[Temujin]

"There might be a linkage between the gov't deficit, interest rates, and the real estate bubble"

Deficit is a fucntion of Expansionary Fiscal policy (Spending money into an ecnomy). Interest rates have all kinds of effects that are too numerous to be easily enumerated here. Real estate ... you may have somthing there.

"The deficit will have to be covered by issuing bonds, the bonds will sell better with higher interest."

Deficits generally don't matter. Look at the United States. I don't know about how Japan controls it's money supply though (which could eliminate or exacerbate the scenario that you envision). If they have a tight money policy (which i doubt) then that could be the problem.