USTreasuries

Japan just sent a clear warning to Washington. In a rare and pointed statement on national TV, Finance Minister Katsunobu Kato referenced a powerful tool that the U.S. knows all too well — Japan’s $1.13 trillion in U.S. Treasury holdings.
When asked whether Japan might use its position as America’s largest foreign creditor in trade negotiations with the Trump administration, Kato didn’t flinch.
“It’s certainly an option,” he said coolly — a comment that instantly sent shockwaves through financial markets.
This wasn’t an offhand remark. Historically, Japan has steered clear of even implying it might sell off U.S. debt. But with President Trump pushing “reciprocal tariffs” since April, Tokyo seems to be signaling that nothing is off the table anymore.
That initial tariff threat had already shaken U.S. markets. Bond yields surged, sell-offs followed, and investor nerves were rattled. Trump eventually paused the plan for 90 days — but the damage had already been done.

Japan’s Warning: Don’t Test Us
Kato’s bold statement came just hours after Japan’s top trade envoy, Ryosei Akazawa, returned from tense talks in Washington with Treasury Secretary Scott Bessent and other key U.S. officials. Sources say the discussions were heated — especially over U.S. demands on auto imports, energy sales, and agricultural goods.
Japan may be open to buying more American natural gas and farm exports, but they’re not giving in easily. Kato, who also met with Bessent in late April, seems to have reached his limit.
Analysts took notice. Nicholas Smith, Chief Strategist at CLSA, said:
“This is a street fight now. If you’ve got a weapon this powerful, keeping it hidden would be foolish. You don’t need to use it — just showing you might is enough.”
And it’s not just Japan. If China, which also holds massive amounts of U.S. debt, makes a similar move, it could send the U.S. bond market into a tailspin. Together, Japan and China hold incredible leverage. With Japan now flashing its card, others might follow.
Japan’s Prime Minister has already called Trump’s trade strategy a “national crisis.” So for Kato — typically known for being measured and diplomatic — to speak so openly suggests just how serious the situation has become.
Jesper Koll of Monex Group summed it up:
“When Japan’s finance minister brings up U.S. Treasury holdings in public, it’s not just a warning. It’s a statement: We’re done being polite.”
Talks between Japan and the Trump administration are expected to ramp up in May, with a possible agreement by June. But one thing is clear: Japan is no longer simply asking for fair treatment.
They’re saying: Cross us again, and we’ll blow up the bond market.
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