Japan has finally dropped the mask. In a rare and bold move, Finance Minister Katsunobu Kato went live on national television and pulled out a weapon that the US is all too familiar with — Japan's massive $1.13 trillion US Treasury bond holdings.
When asked whether Japan would ever use its position as America's top foreign creditor as leverage in trade negotiations with the Trump administration, Kato did not waver.
“It really exists as a card,” he said calmly — but the impact is anything but calm. Just that one statement has shaken the financial markets.
This is not a casual remark. Japan has always remained silent about even the idea of selling US debt. But with Trump unleashing threats of “counter tariffs” since April, Tokyo clearly is no longer playing nice.
The first tariff threat shook Wall Street. Bond yields soared, panic selling occurred fiercely, and anxiety spread across the markets. Trump later delayed the tariffs for 90 days — but the damage was done.
A warning from Japan: We will not back down
Kato's shock came just hours after Japan's top trade negotiator, Ryosei Akazawa, returned from tense meetings in Washington with US Treasury Secretary Scott Bessent. Behind closed doors, the situation was not pretty — both sides reportedly clashed over car imports, energy deals, and agriculture, all areas where the US is demanding concessions from Japan.
Certainly, Japan may buy more agricultural products or LNG from the US — but they will not concede easily. Kato, who also met with Bessent in April, seems to be weary.
Market observers are not holding back either. CLSA's chief strategist, Nicholas Smith, summarized:
“Now this is street fighting. If you have a weapon, it is naive not to show it. You don't have to pull the trigger — just displaying it is enough.”
But here is the bigger picture: if China — another major debtor power of the US — decides to play the same card, the bond market could fall into chaos. Together, Japan and China hold enough leverage to force the US to concede — and Japan's move may just be the beginning of a global domino effect.
Japan's Prime Minister has called the trade war with Trump a “national crisis.” So, when a usually calm and cautious finance minister like Kato makes a statement like this, you know it's serious.
Jesper Koll from Monex Group has captured this:
“When Japan's finance minister publicly talks about holding US Treasury bonds, it is not just a warning. It is a message: We are no longer playing nice.
Negotiations between Japan and Trump's team are expected to heat up in May, with a potential deal in June. But one thing is clear now:
Japan is no longer asking to play fair — they are drawing a line. If pushed further, they will scorch the bond market.
