Japan Scoffs at Claims It’s Weaponizing $1T in US Treasuries—Because Nothing Says ’Trustworthy Trade Partner’ Like a Trillion-Dollar Leverage Play

Tokyo bluntly rejects accusations of using its mountain of US debt as economic ammunition—because who needs trade wars when you’ve got the Fed’s printing press on speed dial?

Subheader: The Art of Diplomatic Denial (With a Side of Financial Muscle)

Japan’s finance ministry just performed the political equivalent of a magician’s misdirection—insisting its $1 trillion Treasury stash is purely ’strategic reserves’ while Wall Street whispers about the ultimate contingency plan. Meanwhile, dollar-holders everywhere nervously check their exposure.

Closer: In global finance, the loudest denials often come from those holding the biggest sticks—or in this case, T-bills. But sure, let’s all pretend fiat diplomacy isn’t a contact sport.

BOJ delays rate hikes as Trump tariffs pressure Japan’s fragile recovery

Kato also repeated that the primary role of those US Treasury holdings is to give the government enough foreign currency to stabilize the yen when needed. “This has been our stance,” he said, “and we don’t plan to use sale of US Treasury holdings as a bargaining tool in the negotiations.”

The comment sought to reverse speculation triggered by the interview, which briefly raised alarms across global bond markets.

Meanwhile in Tokyo, the Bank of Japan (BOJ) is facing its biggest test since Governor Kazuo Ueda took charge two years ago. On Thursday, the BOJ left short-term interest rates unchanged at 0.5%, despite earlier plans to tighten policy. The decision followed renewed trade pressure from US President Donald Trump, whose fresh tariffs have complicated Japan’s already-fragile economic outlook.

During the post-meeting briefing, Ueda said the timeline for underlying inflation to reach the central bank’s 2% target has been “pushed back somewhat.” That line signaled that the BOJ would delay further rate increases, at least until it assesses the full impact of the new tariffs.

Still, inflation risks remain. Food prices continue to rise, wage hikes are expected to persist, and the yen remains under threat of further weakening. All three factors are giving the BOJ little room to fully walk away from its plan to raise rates.

Akira Otani, former senior economist at the BOJ and now managing director at Goldman Sachs Japan, said raising interest rates under current conditions would be a major risk.

“The worst scenario for the BOJ is to end up further delaying achievement of 2% inflation by proceeding with rate hikes amid high uncertainty,” he said.

Otani has moved his forecast for the next rate increase back by six months, expecting the BOJ to act only in January. Goldman Sachs still expects the BOJ to reach a 1.5% policy rate during the current cycle.

On Thursday, the BOJ also released its new economic outlook. The central bank expects Japan’s economy to grow just barely above potential this year. It also revised its inflation forecast downward and described the risk to the economy as “skewed to the downside.”

That phrasing shows the BOJ is less confident that price growth will continue. Still, Ueda told reporters the bank remains committed to raising rates once conditions improve. He admitted, though, that there’s “extremely high uncertainty” around the path ahead.

For the past thirty years, Japan has failed to lift short-term interest rates above 0.5%. Every time the central bank tried to move toward policy normalization, it ran into problems—whether from weak wage growth or global economic shocks. The repeated failures have kept the country stuck in a cycle of ultra-loose policy.

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