Japan has denied any plan to threaten the United States with the sale of over $1 trillion in US Treasuries during trade talks, Finance Minister Katsunobu Kato said on Sunday in Milan.

The denial came two days after Kato appeared on national television suggesting the holdings could be used as a negotiation card. He clarified the remarks after reporters pressed him for a clearer stance on the government’s position.

Speaking at a press conference, Kato explained that his earlier comments were in response to a question asking whether Japan could offer reassurance to Washington by promising not to offload its Treasury holdings easily.

“My comments were made in response to a question whether Japan could, as a bargaining tool in trade negotiations, explicitly reassure Washington it wouldn’t sell its Treasury holdings easily,” Kato said. “The comments weren’t meant to suggest selling Treasury holdings.”

In Friday’s interview, Kato had said that Japan’s US Treasury holdings, which is the largest in the world, could be used as a “card” in trade negotiations, as Cryptopolitan reported.

That was the first time any official from Japan openly acknowledged the country’s massive debt position as a potential form of leverage against the US However, when questioned again on Sunday, Kato stressed, “Whether Japan actually uses that card is a different question.”

BOJ delays rate hikes as Trump tariffs pressure Japan’s fragile recovery

Kato also repeated that the primary role of those US Treasury holdings is to give the government enough foreign currency to stabilize the yen when needed. “This has been our stance,” he said, “and we don’t plan to use sale of US Treasury holdings as a bargaining tool in the negotiations.”

The comment sought to reverse speculation triggered by the interview, which briefly raised alarms across global bond markets.

Meanwhile in Tokyo, the Bank of Japan (BOJ) is facing its biggest test since Governor Kazuo Ueda took charge two years ago. On Thursday, the BOJ left short-term interest rates unchanged at 0.5%, despite earlier plans to tighten policy. The decision followed renewed trade pressure from US President Donald Trump, whose fresh tariffs have complicated Japan’s already-fragile economic outlook.

During the post-meeting briefing, Ueda said the timeline for underlying inflation to reach the central bank’s 2% target has been “pushed back somewhat.” That line signaled that the BOJ would delay further rate increases, at least until it assesses the full impact of the new tariffs.

Still, inflation risks remain. Food prices continue to rise, wage hikes are expected to persist, and the yen remains under threat of further weakening. All three factors are giving the BOJ little room to fully walk away from its plan to raise rates.

Akira Otani, former senior economist at the BOJ and now managing director at Goldman Sachs Japan, said raising interest rates under current conditions would be a major risk.

“The worst scenario for the BOJ is to end up further delaying achievement of 2% inflation by proceeding with rate hikes amid high uncertainty,” he said.

Otani has moved his forecast for the next rate increase back by six months, expecting the BOJ to act only in January. Goldman Sachs still expects the BOJ to reach a 1.5% policy rate during the current cycle.

On Thursday, the BOJ also released its new economic outlook. The central bank expects Japan’s economy to grow just barely above potential this year. It also revised its inflation forecast downward and described the risk to the economy as “skewed to the downside.”

That phrasing shows the BOJ is less confident that price growth will continue. Still, Ueda told reporters the bank remains committed to raising rates once conditions improve. He admitted, though, that there’s “extremely high uncertainty” around the path ahead.

For the past thirty years, Japan has failed to lift short-term interest rates above 0.5%. Every time the central bank tried to move toward policy normalization, it ran into problems—whether from weak wage growth or global economic shocks. The repeated failures have kept the country stuck in a cycle of ultra-loose policy.

Cryptopolitan Academy: Coming Soon - A New Way to Earn Passive Income with DeFi in 2025. Learn More