Sorry but I'm going to have to disagree. Central banks, as the monopoly issuer of reserves, control rates. Its easy to see this if you just look at the overlay of the FFR, 1 year rate, and 10 year rate.
http://research.stlouisfed.org/fredgraph.png?g=6AK
As you see, the short end of the curve is basically the FFR. The 10 year, although not as correlated, still follows the trend. And as long as the US continues being the monopoly issuer of reserves/dollar (meaning no gold standard, no "Eurozone" monetary union in North America,etc), the Central bank WILL continue to control rates. Not the market. Your assumption is based on thinking from the "gold standard era" where markets did control rates, similarly to what is happening in Spain/Italy/Greece - a TRUE debt crisis (even with the ECB is taking steps, which just postpones the crisis, not solves it).
You have NO choice but to believe in their "supreme" power because the realism of the modern monetary system hold true- that the CB controls rates because they control reserves because they are the monopoly issuer of the currency.
Also, your understanding of deficits/debt is erroneous. All debt/deficit is, is private sector savings. Its an accounting identity. If you take the public debt that HAS to equal total net private sector savings (there's also the foreign sector, but to keep it simple here will not go into that).
Public debt is NOT like private debt. To understand why Japan has been buying bonds, think of it like this.
They sell us Item X. They receive US dollars, which are credited to their "reserve accounts" (basically a checking account) at the Fed. Japan can either Buy US products with these Dollars OR 'save' them. If Japan decides to save them, a rational actor will decide to save them in the best way in which they can earn interest. So they decide to buy US bonds (aka public debt). So what the Fed does is transfer the dollars from their 'checking account' to their 'savings account' (where they earn higher interest). Same goes for Japan.
The fiscal deficit (spending=printing) of a country borrowing in their OWN currency is nothing but an accounting process & monetary operation, in which they offer the private (and foreign) sector higher yields in which to SAVE in.
So if one sector is Net saving (a surplus), one sector MUST be in a deficit. Given Japan's situation in which the private sector is net savers (and usually, this SHOULD be the way you want things, unless a foreign sector surplus can cover that deficit ran by the private sector), the public sector is in a deficit.
This chart shows the balances of the 3 sectors of the economy in Japan. http://bilbo.economicoutlook.net/blog/wp-content/uploads/2011/03/Japan_… Note that this has to equal to Zero.
The matter of fact is, Japan does not borrow in dollars (or the US does not borrow in Yen). They "borrow" in their own currency, so a debt crisis is operationally impossible (unless caused politically, like lets say, restrictions on spending based on an arbitrary number, aka the debt ceiling).
The only "crisis" Japan can face is one with deflation (depression) or inflation. Only in the latter scenario would Japan need to do any "austere" reforms (aka cut spending/raise taxes, in order to lower Aggregate demand and in turn inflation). But given the weak domestic demand and deflation resulting from it, this is the LEAST of Japan's worries (and the US).
As for the “What are the trade-offs?” question regarding central banks controlling rates. The trade off is that the private sector gets low rates. Now, as you said, there can be negatives that come with this (in a booming economy, this could HELP lead to bubbles- which create excessive private debt which hurts the recovery like it is right now in the US-, but not necessarily). There are also positives with low interest rates in a weak economy, in which refinancing/borrowing gets cheaper thus leading to a faster recovery (however, since we are in a rare care of the balance sheet recession, this has not helped much in this recovery, but thats another debate).
But to just conclude, CBs control rates, as evidenced by Japan over the past 20 years! Not to sound offensive, but people have made the SAME argument on Japan for 2 decades now (and you even mention this). They will make the same arguments for the US too, where a "fiscal debt crisis" is right around the corner (despite ALL the evidence/fundamentals saying there isn't).
Thanks