The day before yesterday, on Friday, Japan's finance minister Kato stated that Japan holds $1.1 trillion in U.S. Treasury bonds—the highest among all foreign creditors of the U.S.—which can serve as a 'bargaining chip' in trade negotiations with Washington, but 'whether to use this chip is another matter.'

This can be seen as Japan's blatant threat to the U.S. If the U.S. dares to impose tariffs on Japan, Japan will sell off U.S. Treasury bonds. If Japan truly sells off its bonds, over a trillion dollars is definitely enough to give the U.S. a big hit. On Friday, the yield on the ten-year U.S. Treasury bonds rose again, closing at around 4.314, not far from the 4.5 warning line.

Hey? What happened? The whole world knows that the U.S. is like a father to Japan, and Japan follows the U.S. closely. Why does Japan want to challenge the U.S. this time?

We need to go back to April 22. At that time, the tariff negotiations between the U.S. and Japan had just finished, and Trump hinted that 'significant progress' had been made in the talks. U.S. media described the negotiations as 'frank and constructive.' However, Japan has not expressed any stance on the negotiations, and no formal documents were signed. If we carefully examine this negotiation, we can see that the U.S.-Japan talks actually broke down; 'significant progress' was just a performance by Trump.

Firstly, the level of Japan's negotiation representatives this time is not high. Japan's representative, Akizawa Ryo, is not the finance minister and holds far less power than the finance minister, while the U.S. chief representative is Finance Minister Bessette. The disparity in ranks is evident, and it's clear that the Americans are showing considerable courtesy this time, hoping to quickly reach a tariff agreement to show other countries.

However, just when Akizawa Ryo and Bessette were halfway through their discussion, Trump intervened and spoke with Akizawa for 50 minutes. One must say, Trump, coming from a business background, doesn't have a high level of political skill. At such a time, it only makes Japan see his eagerness for results, which means Japan will definitely demand more favorable terms.

Moreover, to showcase his 'winning' posture, Trump is asking for sky-high demands. First, he demands that Japan pay more protection fees; second, he wants Japan to buy more U.S. agricultural products, energy products, Treasury bonds, and military equipment; third, he insists on tariffs; fourth, he calls for significant investment in the U.S.

Japan's finances have been tight in recent years. If they buy more U.S. bonds and pay more protection fees, they can't handle it. These conditions were already giving Japan a headache. Unexpectedly, besides these four conditions, Trump also proposed an 'undetermined clause.' You might be confused about what an 'undetermined clause' is. It means I want you to agree to a condition, but I haven't decided what that condition is yet. You sign the paper first, and when I figure it out, I'll add the condition later. By then, it will count as your agreement. Wow, this sounds so similar to a tsundere girlfriend making her devoted boyfriend sign a blank piece of paper, right?

Truly the 'Art of the Deal' by Trump.

If Japan can agree to these conditions, it would really be like being treated as a dog.

Just when the Americans were boasting about the 'significant progress' in the U.S.-Japan tariff negotiations, Japan's finance minister directly slapped them in the face, saying that if you dare to raise tariffs, I dare to sell off. This clearly indicates that not a single example of a successful tariff negotiation has emerged, and the Americans are now in a difficult position.

Originally, the Americans intended to negotiate with dozens or even hundreds of countries, then package everything together to negotiate with China. At that point, they could leverage their victory to force China to compromise. Japan, South Korea, and the European Union were the best examples. If they had reached any agreement with a small country that has no connection to China, the whole world would not accept it and would only see the Americans as incompetent. Unexpectedly, the talks with Japan broke down, and even their own 'dogs' do not listen to them anymore. It has also become difficult to reach agreements with other allies. So what should they do? They still have to talk to China, but negotiating with China now means admitting defeat and not getting the results they desire.

I've said before that the tariff war needs to enter its second phase, with China and the U.S. each seeking allies to see whose power is stronger. So far, it seems the Americans are a step behind.

However, whether the Americans reach an agreement with allies to pressure China, or fail to reach an agreement and compromise with China in advance, this is something the market is willing to see. The tariff war cannot continue; market stability will inevitably be maintained, but the process will be tumultuous. Everyone must be patient.