The lack of savings can be attributed to both demographics and a surge in consumption that preceded the value added tax rate hike in April 2014, said Govinda Finn, head of global strategy.
Japan's population is burning through savings as they enter retirement age, and the average savings rate for age 65 and older is -20%, SLI said.
"Given the structural nature of these drivers it seems unlikely that the nation's savings rate has hit bottom."
Domestic bond buyers
Japan doesn't rely on external financing of its public sector debt. A high percentage is held domestically (unlike Greece, for example, which relies more on external capital).
The household and corporate sectors have traditionally had a large appetite for buying government bonds due to a high savings rate. As the savings rate declines, it has the potential to undermine the nation's ability to service the ¥780trn ($6.5trn) debt, which is the highest in the world at about 240% of debt-to-GDP.
By comparison, Greece's debt-to-GDP ratio is about 174% and the US ratio is 107%, according to 2014 data from Bloomberg.
Fitch Ratings this week downgraded Japan's credit rating to A from A+, five levels below the top rating, driven by concerns over debt servicing.
Traditionally in Japan, corporate savings have more than offset the decline in household savings, Finn said.
"Here too though, the sustainability of financial surpluses is under question. The government's monetary policy and growth strategy are both seeking to pressure companies to spend rather than save.
"So far, negative real incomes and more favourable tax incentives and subsidies have failed to result in a significant shift in corporate investment. However, we expect there to be more progress here in 2015, a fact that is likely to further weaken the ability of the government to use debt to finance its fiscal expenditure."
The top three fixed income funds with more than 40% exposure to Japan have underperformed Japan equities over the last three years: