In an extraordinary departure from Japan’s traditionally cautious tone, Finance Minister Katsunobu Kato has issued what amounts to a financial warning shot to the United States. Speaking live on national television, Kato signaled that Tokyo could leverage its massive holdings of U.S. Treasury bonds — worth over $1.13 trillion — in ongoing trade negotiations.
$Asked directly whether Japan might consider using its status as America’s largest foreign creditor as a negotiating tool with the Trump administration, Kato’s answer was succinct and pointed:
“It does exist as a card.”
That single sentence, delivered with deliberate calm, reverberated across global markets. For decades, Japanese officials have avoided even hinting at weaponizing their U.S. debt holdings, understanding the destabilizing potential such a threat could pose to the global financial system. This shift marks a serious escalation — and a sign that Japan’s patience may be wearing thin.
Trade Tensions Boiling Over
The timing of Kato’s remark is no coincidence. It followed a tense visit to Washington by Japan’s top trade negotiator, Ryosei Akazawa, who met with U.S. Treasury Secretary Scott Bessent and other senior officials. Behind closed doors, discussions reportedly broke down over several contentious issues: U.S. automotive imports, energy exports, and access for American agricultural products in the Japanese market — all areas where President Trump has demanded rapid concessions.
Since April, the Trump administration has floated the idea of “reciprocal tariffs” — threatening punitive measures if trading partners don’t reduce their surpluses with the U.S. The first announcement triggered significant turmoil in the bond market: U.S. Treasury yields spiked, prices fell, and uncertainty spread among investors. Although Trump paused implementation for 90 days, the damage to market confidence was done.
Now, with Kato’s statement, Japan is signaling that it has its own set of economic levers — and it’s no longer afraid to reach for them.
A Global Domino Effect?
While Japan is the largest foreign holder of U.S. Treasuries, it’s not alone. China, holding roughly $850 billion in U.S. debt, has also previously hinted at using its bond holdings as leverage during trade confrontations. If Tokyo’s shift emboldens Beijing to follow suit, the implications for U.S. financial markets could be dramatic. Bond prices would likely fall, yields would rise further, and borrowing costs for the U.S. government — already grappling with rising deficits — could soar.
Nicholas Smith, Chief Strategist at CLSA, summed it up bluntly:
“This is a street fight now. If you’ve got a powerful weapon, not showing it would be naive. You don’t have to use it — just letting them know you could is enough.”
A Calculated Message to Washington
Kato’s measured but unmistakable threat reflects mounting frustration within the Japanese government. Prime Minister Shinzo Abe has already called Trump’s trade policies a “national crisis,” and Kato — known for his typically diplomatic style — would not have spoken so candidly without official backing.
“This isn’t just a negotiation anymore,” said Jesper Koll, senior adviser at Monex Group.
“When Japan’s finance minister talks openly about Treasury holdings, it’s not just a warning. It’s a message: We’re done playing nice.”