In a dramatic turn, Japan has hinted at playing a powerful economic card — its massive $1.13 trillion stake in U.S. Treasury bonds — signaling a shift in tone in ongoing trade negotiations with Washington.
Japanese Finance Minister Katsunobu Kato made waves during a live national broadcast when he candidly acknowledged that Tokyo’s holdings of U.S. debt could be used as leverage. “It’s definitely a card we hold,” Kato said with a calmness that belied the weight of his words — a statement that sent shockwaves through financial markets.
Japan has historically refrained from even suggesting it might weaponize its bond holdings. But facing increasing pressure from the Trump administration’s push for “reciprocal tariffs,” Tokyo appears to be drawing new lines.
The initial U.S. tariff threats had already unsettled markets, causing a selloff in bonds and a spike in yields. Although Trump later hit pause on the measures for 90 days, the sense of unease persisted.
Kato’s remark came shortly after Japan’s chief trade negotiator, Ryosei Akazawa, returned from difficult talks in Washington with U.S. Treasury Secretary Scott Bessent. Sources suggest the meetings were marked by friction over auto imports, energy deals, and agricultural access — all areas where Washington wants rapid concessions.
While Japan may be open to importing more American goods, Tokyo is making it clear that it won’t do so under duress. Kato’s recent visit to D.C. appears to have hardened his resolve.
Market experts didn’t downplay the shift. CLSA’s chief strategist Nicholas Smith remarked, “This is no longer a polite negotiation. Japan’s just reminded everyone that it has serious firepower. You don’t have to pull the trigger — just pointing the weapon gets the message across.”
The implications go beyond Japan. If China, another major holder of U.S. debt, echoes this stance, it could set off broader instability in American financial markets. Together, the two Asian powers possess considerable influence — and Japan has just set the precedent.
Prime Minister Shinzo Abe had already labeled the trade standoff with the U.S. a “national crisis.” For Kato — known for his cautious demeanor — to publicly raise the stakes suggests Japan has had enough.
Jesper Koll of Monex Group summed it up: “When Japan’s finance minister starts speaking this bluntly, it’s more than a warning — it’s a declaration. The gloves are off.”
As negotiations ramp up into May, with a potential agreement on the horizon in June, Tokyo is no longer merely seeking equitable trade terms. The message is unmistakable: test Japan’s resolve, and the global bond market may bear the cost