Washington is growing anxious over Japan’s sliding yen and shifting bond market primarily because Japan remains the largest foreign lender to the United States. President Donald Trump brought up the topic directly with Prime Minister Sanae Takaichi during a meeting last week.
Satsuki Katayama, Japan’s finance minister, revealed details of this conversation on Friday. In late July, the yen approached 164 per dollar—marking a 40-year low—and continues to hover near the 157 level.
Japan Is the Biggest Foreign Holder of US Debt
Japan holds a greater volume of US Treasury bonds—the debt instruments Washington issues to finance its operations—than any other international partner. According to the CFR, Japan’s holdings surpassed $1.1 trillion as of May.
To defend the value of its currency, Tokyo unloads dollars and acquires yen. Based on estimates from financial analysts, Tokyo has allocated approximately $167 billion toward these interventions this year, financing the purchases partly by liquidating Treasuries.
A reduction in buyers compels Washington to raise the yields it offers to attract capital. Federal Reserve figures indicate that the US 10-year yield, which serves as a benchmark for mortgage pricing, climbed to 5.18% on September 24.
On July 31, the United States and Japan carried out a joint currency intervention to buy yen for the first time since 1998. Treasury Secretary Scott Bessent subsequently challenged market speculators to bet against a stronger 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
For a long time, Japanese investors favored US bonds because domestic yields were virtually nonexistent. The landscape shifted on September 18 when the Bank of Japan raised its benchmark rate to 1.25%, achieving its highest level since 1995.
Data from Bull Theory highlights that Japan’s 10-year yield reached a 30-year peak of 3.115% on Friday, while the two-year yield touched a 31-year high of 1.975% on Monday. Bloomberg reported that growing anticipation of rate hikes fueled these movements.
The CFR has noted that Japanese authorities have also considered directing their state pension fund to exchange foreign debt instruments, such as Treasuries, for Japanese government bonds.
A Weak Yen Also Makes US Trade Harder
A devalued currency makes Japanese products more affordable when measured in US dollars. Jiji reported that Takaichi mentioned Trump told her US trade “has been tough due to the yen’s depreciation.”
What Japan’s Bond Market Means for Bitcoin
The connection between these economic shifts and cryptocurrency lies in the yen carry trade. In this strategy, investors borrow low-interest yen to purchase higher-yielding, risk-focused assets like Bitcoin (BTC). When the value of the yen spikes or Japanese interest rates climb, servicing those debts becomes more expensive, prompting traders to liquidate assets to settle their obligations.
A similar dynamic played out in August 2024. According to the Bank for International Settlements (BIS)—a Switzerland-based institution owned by central banks—an abrupt surge in the yen triggered a mass exit from positions backed by yen loans.
The BIS reported that Japan’s TOPIX stock index slumped 12% on August 5 of that year, whereas Bitcoin and Ethereum plummeted by as much as 20%. The organization calculated that approximately $250 billion in carry trade positions preceded the sell-off.
Conditions have evolved differently during the current year. BeInCrypto observed that although the yen appreciated by 3.7% over three sessions in early September, Bitcoin managed to stay above the $79,000 threshold.
BeInCrypto also pointed out that simultaneous monetary tightening by the Federal Reserve, the European Central Bank (ECB), and the Bank of Japan represents the primary macroeconomic threat to Bitcoin. All three institutions have since implemented rate increases. On Monday, Bitcoin changed hands at $82,873, marking a 2.3% daily decline.
OMFIF reported that Katayama indicated future market interventions would rely on a lending facility provided by the Fed rather than the liquidation of US Treasuries.
Frequently Asked Questions
Why is the US concerned about Japan’s weak yen and bond market?
Japan is the largest foreign holder of US debt, meaning any major shift in Japanese financial strategy or currency intervention directly impacts the market for US Treasury bonds and influences American borrowing costs.
How does Japan’s intervention affect US Treasury yields?
To support the yen, Tokyo has sold portions of its US Treasury holdings. A lower volume of buyers in the US debt market forces Washington to offer higher yields, which in turn drives up American mortgage rates.
What is the yen carry trade and how does it affect Bitcoin?
The yen carry trade involves borrowing cheaply in yen to buy riskier investments like Bitcoin. When the yen strengthens or Japanese interest rates rise, these loans become more costly, forcing traders to sell assets like Bitcoin to pay back the borrowed funds.
How have Japanese interest rates changed recently?
The Bank of Japan raised its key interest rate to 1.25% in September—its highest point since 1995—while Japan’s 10-year and two-year bond yields reached multi-decade highs.
