Japan has officially signaled it’s ready to escalate. In a rare and pointed statement on national television, Finance Minister Katsunobu Kato made it clear: Japan’s $1.13 trillion stash of U.S. Treasury bonds could be used as leverage in trade disputes with the U.S.
When asked if Japan might use its status as America’s largest foreign creditor during tense negotiations with former President Trump’s administration, Kato didn’t dodge the question.
“It is a card we hold,” he stated calmly — a comment that sent shockwaves through the financial markets.
This wasn’t an accidental remark. Historically, Japan has avoided even hinting at the possibility of selling off U.S. debt. But with Trump’s aggressive stance on tariffs since April, Japan appears ready to consider every option.
The initial tariff talk already rattled U.S. markets — bond yields jumped, investors dumped Treasuries, and uncertainty spread. Although Trump temporarily hit pause for 90 days, the warning signs were loud and clear.
Japan’s message: Don’t push us too far.
Kato’s comments came shortly after trade envoy Ryosei Akazawa returned from tense meetings in Washington with Treasury Secretary Scott Bessent. Negotiations reportedly hit roadblocks over auto imports, energy, and agriculture — key areas where the U.S. wants Japan to concede quickly.
Japan may be open to increasing imports of U.S. natural gas or farm goods, but they won’t back down easily. Kato, who also met with Bessent in April, appears to have reached his limit.
Strategists like CLSA’s Nicholas Smith summed it up bluntly:
“This is a street fight. If you’ve got leverage, show it. You don’t need to pull the trigger — just letting them know you can is enough.”
And it’s not just Japan. Should China — another major holder of U.S. debt — follow Japan’s lead, the U.S. bond market could face major turmoil. Combined, Japan and China hold massive financial power, and Japan just showed its hand first.
Japan’s Prime Minister has already described the trade war as a “national crisis.” For someone as traditionally measured as Kato to speak so directly signals just how serious the situation has become.
Jesper Koll of Monex Group put it bluntly:
“When Japan’s finance minister talks publicly about U.S. Treasuries, it’s not just a warning — it’s a statement: We’re done playing nice.”
With negotiations set to ramp up in May and a possible deal in June, one thing is clear: Japan isn’t simply asking for fair treatment anymore. They’re warning — push harder, and we’ll shake the foundation of your bond market.