The US is worried about Japan’s weak yen and its bond market because Japan lends Washington more money than any other foreign country. President Donald Trump raised the yen directly with Prime Minister Sanae Takaichi last week.
Japan’s finance minister, Satsuki Katayama, disclosed the exchange on Friday. The yen hit nearly 164 per dollar in late July, its weakest in four decades, and still trades near 157.
Japan Is the Biggest Foreign Holder of US Debt
Japan owns more US Treasury bonds, the IOUs Washington sells to fund its spending, than any other foreign country. It held over $1.1 trillion as of May, according to the CFR.
To prop up the yen, Japan sells dollars and buys yen. Based on analysts estimates, Tokyo spent about $167 billion doing so this year, partly by selling Treasuries.
Fewer buyers force Washington to offer higher yields. The US 10-year yield, which guides mortgage rates, reached 5.18% on September 24, Fed data show.
On July 31, the US and Japan jointly bought yen for the first time since 1998. Treasury Secretary Scott Bessent later dared traders to bet on a weaker yen.
“I am the house now, so when we intervene with the Japanese yen, I have pretty good insight into what the Japanese… are going to do. And you can bet against me if you want,” Bessent stated.
Rising Japanese Yields Could Pull Money Home
Japanese investors long bought US bonds because their own paid almost nothing. However, the Bank of Japan lifted its key rate to 1.25% on September 18, its highest since 1995.
Japan’s 10-year yield hit a 30-year high of 3.115% on Friday. The two-year yield reached a 31-year high of 1.975% on Monday, Bull Theory noted. Rate-hike bets drove the move, per Bloomberg.
Japanese officials have floated having their state pension fund swap foreign bonds, including Treasuries, for Japanese ones, the CFR said.
A Weak Yen Also Makes US Trade Harder
A cheap yen makes Japanese goods cheaper in dollars. Takaichi said Trump told her US trade “has been tough due to the yen’s depreciation,” Jiji reported.
What Japan’s Bond Market Means for Bitcoin
The link runs through the yen carry trade, where investors borrow cheaply in yen to buy riskier assets, including Bitcoin (BTC). When the yen jumps or Japanese rates rise, those loans get costlier and traders sell to repay them.
That happened in August 2024. A sudden yen surge set off a rush out of yen-funded bets, according to the Bank for International Settlements (BIS), a Swiss-based body owned by central banks.
Japan’s TOPIX stock index lost 12% on August 5 that year, while Bitcoin and Ethereum fell as much as 20%, the BIS said. It estimated about $250 billion in carry bets going into the selloff.
This year has played out differently so far. The yen strengthened 3.7% in three sessions in early September, yet Bitcoin held above $79,000, BeInCrypto reported.
BeInCrypto also flagged the Fed, the European Central Bank (ECB), and the Bank of Japan tightening together as Bitcoin’s biggest macro risk. All three have since raised rates. Bitcoin traded at $82,873 on Monday, down 2.3% today.
Katayama has said future interventions would tap a Fed lending line instead of selling Treasuries, OMFIF reported.
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