"So, what causes rates to rise? Rates rise when the market senses a paradigm shift."

Wrong. Rates rise when the Central Bank decides to raise them. The market has little control of rates, especially on the short end of the curve. The BoJ decides what rates will be. The market only has minor influence on the long end. (explained here: http://pragcap.com/i-want-to-come-back-as-the-federal-reserve-you-can-i… )

I read both parts of your post, and your premise is built on flawed understandings of the modern monetary system.
Japan's not going to face a debt crisis, even if debt/gdp gets to 500%. The only "crisis" they can face, as a currency issuer is one of inflation. However, as you said, given the deflationary pressures of a weak economy, that is unlikely to happen.
The only issue going forward with an aging population will be who will create all the goods and services (supply) to meet all the demand. If that does not stay stable or grow, then Japan will be facing inflationary pressures. But given the weak economy (weak demand), this should be of little worry to Japan.

Also, all public debt is private sector savings. Its not "debt" in the sense that you understand debt to be. A sovereign currency issuer's "debt" cannot be compared to a currency users (people, businesses, states, Eurozone nations).

Also, on that "tax/revenue" issue: An issuer of currency can NEVER run out of "money". That is operationally impossible. They can always just issue more. Obviously there is a constraint to this (inflation: More money chasing fewer goods/services), but as I explained above, that is unlikely to get out of hand.

What Japan (and most of the world) needs is aggressive monetary and ESPECIALLY fiscal policy. They need to increase the level of net financial assets so the population can start spending again. This actually will cause some inflationary pressures as the economy grows. And that's what will send rates up, once the BoJ sees inflation rising.

I have to give you credit for laying out a nice detailed argument though. Also, I see you went to my current school (UCLA) for Business school ;)...Go bruins!