Japan Hints at Using $1 Trillion in U.S. Treasuries as Trade Negotiation Leverage

A Japanese official raised eyebrows during ongoing trade discussions with the Trump administration by implying that the country's massive U.S. Treasury holdings could be used as a bargaining chip—only to later walk back the comment as speculative.

Japan, like many other nations engaged in commerce with the U.S., has been negotiating with the Trump administration following President Donald Trump’s decision to introduce new tariffs on imports—tariffs that some critics argue pose significant problems for Japan.

On Friday, Japanese Finance Minister Katsunobu Kato remarked that Japan’s substantial ownership of U.S. Treasury securities—currently the largest of any foreign country—could potentially play a role in the discussions. The Financial Times characterized the move as “a rare baring of teeth by America’s closest ally in Asia.”

When questioned on whether Japan intended to maintain its long-standing stance of holding onto U.S. Treasury bonds, Kato responded with a subtle warning. The U.S. relies on these bonds to finance government operations through borrowing.

“It does exist as a card,” Kato said.

He continued, “Whether or not we use that card is a different decision.”

Together, Japan’s public and private investors hold approximately $1.13 trillion in U.S. Treasuries.

Some observers say the effectiveness of such a threat doesn’t rely on action.

“This is a street fight: Promising not to use one of your strongest, most brutal weapons would be both naive and reckless,” said Nicholas Smith, chief Japan strategist at CLSA.

“You don’t need to use the weapon, just brandish it,” he added.

In later comments, Kato seemed to confirm that the suggestion may have been more strategic than literal.

“My comments were made in response to a question whether Japan could, as a bargaining tool in trade negotiations, explicitly reassure Washington it wouldn’t sell its Treasury holdings easily,” Kato said, according to Reuters.

The ongoing discussions between the two countries focus heavily on proposed tariffs targeting Japanese-made automobiles, Bloomberg reports. Japan’s lead trade negotiator, Ryosei Akazawa, has expressed optimism that a deal might be finalized by June.