Japanese finance minister says selling U.S. bonds a "card on the table"
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A woman walks past a chart in Japan showing interest rates. Photo: Kazuhiro Nogi/AFP via Getty Images
Everyone now knows that the bond market has a unique sway on President Trump's policymaking — and a subtle, but important, threat from the Japanese government could move his stance on trade with a crucial ally.
Why it matters: Japan is the largest foreign holder of U.S. Treasuries, and even the vaguest hint that it could dump those holdings is powerful leverage with the administration. Following through on the threat could cause interest rates to spike.
Catch up quick: Japanese Finance Minister Katsunobu Kato said Friday that the country's $1.13 trillion in Treasury holdings were a "card on the table" in trade talks, The Associated Press reported.
- "It does exist as a card, but I think whether we choose to use it or not would be a separate decision," Kato said on a Japanese TV broadcast, per the AP.
- It's a noteworthy shift in the government's messaging, given a historical reticence by Japanese leaders to even mention that such a threat could exist.
- The Financial Times described it as a "rare baring of teeth."
State of play: If Japan or other major holders of Treasury securities started dumping them, it would likely drive up U.S. interest rates.
- That would, in turn, make financing massive U.S. budget deficits more onerous and strain homebuyers and corporate borrowers.
- The Japanese government wasn't quite threatening to do that, but even acknowledging the possibility represents a surprising turn of events.
- That said, the strategy could carry costs and risks for the seller, as well, by potentially tanking the value of their own bond holdings and causing massive disruption through currency markets.
Zoom out: Japan is one of the five largest U.S. trading partners, as well as a rock-solid ally in the region, so there was some surprise when the U.S. hit the country with a 24% reciprocal tariff in early April.
- Getting a deal done with Japan became one of the first priorities of trade talks after Trump paused most of his global tariffs. Within days, Japan's trade minister was at the White House negotiating with Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick.
Yes, but: Progress has been slow, amid reports of a standoff over tariffs on the auto industry, which is crucial to Japan.
Between the lines: As U.S. Treasuries sold off last month and yields spiked, there was speculation foreign governments might be dumping bonds.
- J.P. Morgan Private Bank, in a research note last week, said there were signs of foreign selling pressure, but from private holders, as opposed to governments "weaponizing" their holdings.
The intrigue: Kato's choice of words — describing the Treasury holdings as a "card" to be played — appears pointed.
- In his now-famous blow-up with Ukraine's Volodymyr Zelensky in the Oval Office earlier this year, Trump warned him "you don't have the cards right now."
The bottom line: Japan does — and playing them could be devastating.
