Japan is the largest foreign holder of US Treasuries, and its currency – the yen – is in trouble. The yen recently hit a 40-year low against the US dollar.

The US Treasury had joined Japan’s finance authorities in an intervention last week ​to prop up the yen.

Japanese investors collectively own about $1 trillion in Treasuries – so preserving them means preserving the world’s biggest buyer of U.S. debt. Because if Tokyo dumps U.S. debt, the U.S.’s $40 trillion borrowing problem just got a whole lot more expensive.

So, the US is basically just avoiding a sell-off in US Treasuries by its vassal state – Japan. Some of this Treasury sell-off has already happened, though.

Japan tied to US

As the Canary reported central banks now hold 27% of their reserve assets in gold, surpassing US dollar Treasuries at 22%, and just a year ago this was 20% gold versus 25% Treasuries, according to the latest report by the European Central Bank.

The Hill said:

The Iran war’s impact on the yen could threaten the stability of the yen-carry trade investment strategy where traders borrow Japanese yen at low interest rates to buy higher-yielding foreign assets, risking sharp market liquidations when the yen strengthens.

Another fallout of the immoral war on Iran that Trump is raging.

Yen – a weak link

Philip Pilkington took to X to write an 11-point post on the U.S. buying of yen, saying Japan is the weakest link in the global dollar system. The Treasury’s intervention, complete with a conveniently “leaked” memo, is just fighting gravity, he said:

1/ It is becoming increasingly clear that the weakest link in the global dollar system is Japan and that the meltdown of the Japanese financial system might cause the unwinding of the whole system. pic.twitter.com/Yon5co3i1a

— Philip Pilkington (@philippilk) August 3, 2026

He said that, however, Japan can’t raise rates without triggering zombie defaults, which would force Tokyo to dump its $1 trillion in Treasuries and send American borrowing costs soaring to levels that could spell endgame for the dollar system.

3/ Bessent really is fighting gravity here. The markets are convinced that the yen has entered a doom spiral and are heavily short. pic.twitter.com/fRSwwadmfr

— Philip Pilkington (@philippilk) August 3, 2026

The critical minerals angle

In early July, Reuters reported that a shortage of critical minerals was starting to affect ​the broader Japanese economy. It said:

Since Takaichi enraged Beijing with comments about defending Taiwan in November, Beijing has choked off shipments of certain key minerals to Japan.

Japan’s economy took a hit in 2010 during a previous bout of ​trade restrictions by China, but the effect could be worse this time around now that rare earths have grown in importance in a variety of supply ⁠chains, said Takeshi Higashifukasawa, senior economist at Mizuho Research Institute.

China’s primacy in critical minerals and rare earths gives it the ability to deter US bombs and threats. It has used export controls and restrictions to this end – as the Canary reported:

China has created a deterrence against US bombs by building an industrial base and dominate critical minerals. However, US is using coercive economic actions against other states as it tries to counter China. pic.twitter.com/l9CB2FlKQ9

— Canary (@TheCanaryUK) May 28, 2026

Broken promises

Reuters said that the US bond market has:

long had a dark cloud hanging over it: the threat that one of America’s biggest creditors, most likely China or Japan, might liquidate some of their enormous Treasuries holdings, driving up borrowing costs and triggering an economic and market crash.

That cloud just got a little darker.

The sweet irony is that Trump’s campaign promises have been about reducing debt. The con man, of course, didn’t keep his promise.

According to Fortune, in 2016, Trump said he would eliminate the country’s debt, which at the time stood at $19 trillion, “over a period of eight years.” It has more than doubled instead. Last year, he supported the idea of using 20% of the savings from the Elon Musk–led budget-slashing initiative DOGE to pay down the debt. Oh well, Trump lied – must be a day ending in “day.”

Featured image via the Canary

By Nandita Lal

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