Japan Threatens Their Nuclear Option in Trump’s Trade War

By Jacob Weindling  |  May 2, 2025 | 1:07pm
Photo by Japan's Cabinet Public Relations Office, Cabinet Secretariat
Economy Trade War
Japan Threatens Their Nuclear Option in Trump’s Trade War

America’s largest foreign holder of US Treasuries has always been loath to even consider the notion of selling the immense amount of US debt they hold, but Trump has upended every kind of precedent imaginable, and now the financial world’s nuclear option has firmly been put on the table. Japan’s finance minister said during an interview on Friday that its eternal stance as a non-seller of US Treasuries “does exist as a card” and that “whether or not we use that card is a different decision.” That these comments came just hours after their top trade negotiator Ryosei Akazawa returned from Washington is an indicator as to how those talks went.

While this may seem like an anodyne statement, it is anything but, and the Treasury market’s aggressive selloff today proves it. Japan has based decades of their own monetary policy around holding and buying more US Treasuries, and the largest, most liquid market in the world has operated on the assumption that the largest foreign holder of its assets would never sell US debt, because it would be calamitous for Japan’s own finances. Jesper Koll, a director at the online brokerage Monex Group told the Financial Times that “the fact that the usually extremely guarded and diplomatic finance minister spoke up on national TV about what is arguably Japan’s biggest asset in dealing with America confirms the growing confidence of Japan’s elite in their dealings with the US.”

It’s difficult to say what kind of impact this would have on the economy because it would be such an unprecedented move, but needless to say, the net effect of the largest foreign holder of US Treasuries selling them would not be good. Interest rates would rise for Americans and stocks theoretically should fall just based on simple future cash flow math. All you really need to know about the power of the bond market is how it did in a week what the stock market couldn’t do in two months and got Trump to blink on his trade war last month. I cannot stress this enough: the Illuminati are real, they hold US Treasuries, and when they speak, the whole world listens whether they want to or not.

🇯🇵🇺🇸 Japanese investors offloaded more than $20bn in international bonds as Donald Trump’s tariffs shook markets early this month, – FT

This could just be posturing by Japan of course. Trump is throwing his weight around to truly unhinged degrees and so it’s only logical that it would spark a similarly unhinged response. But the mere fact that something that was once considered unfathomable by financial markets around the world has now been firmly placed on the negotiating table speaks to the unprecedented times we live in. The true superpower of the United States doesn’t lie in our weaponry or our consumption, but the trust that the rest of the world has that we will pay our bills. The entire global financial system is predicated on this assumption, creating the largest, most liquid market in the world, and now that market is in doubt to a degree that it has never been.

And it’s not just our largest foreign holder of US Treasuries who we have to be concerned about, but our second largest too. Conspiracy theorists have long alleged that China is weaponizing their holdings of US Treasuries against us, despite no evidence that is actually happening, but if Japan is openly making this threat, you can bet your bottom US Treasury dollar that China is at least talking about it internally. This is not as easy or painless as the conspiracy theorists would lead you to believe, as like Japan, China’s monetary policy is dependent on their US Treasury holdings and selling them is a form of mutually assured destruction–hence why I used the term “nuclear option” in my title.

But China is clearly following the rest of the world in attaching a new risk premium to US assets. Yang Panpan and Xu Qiyuan, two senior fellows at the Chinese Academy of Social Sciences wrote in April that “the safety of US Treasuries is no longer a given,” and “that era is behind us, and we should be concerned about that change from the safeguarding perspective of our Treasury holdings.”

If other countries decide that US Treasuries are no longer a safe haven asset, that is truly game over for this iteration of America. And there is increasing evidence that this view expressed by analysts like Panpan and Qiyuan is not a short-term Trump-centric notion. The United States is an untrustworthy trading partner not necessarily because of our delusional president who doesn’t know what a trade deficit is, but because Americans have proven we are willing to elect presidents who rip up trade deals on a whim that they themselves negotiated. Global financial markets have been loud and clear about this since liberation day: we as a people are not to be trusted like we used to be, and the bond market turmoil is proof that investors are putting their money where their mouth is.

No one knows what lies around the corner for the US economy, but it’s crystal clear that given the track that we’re on, it’s headed nowhere good. We may be able to avoid hitting the iceberg in the short-term if Trump does what the stock market has long assumed and caves on 40 years of his wrongheaded beliefs about trade deficits, but the long-term damage to the United States’ reputation as the globe’s sole home to safe haven assets looks to be irreversible, and no one will pay a heavier price for that than Americans will.

 
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