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Japan hints at using U.S. Treasury holdings as leverage in high-stakes trade talks with Trump

By isabelle // 2025-05-03

• Japan’s finance minister acknowledged that its $1.13 trillion in U.S. Treasury bonds could be used as leverage in trade talks with the Trump administration.
• The comments mark a shift from Japan’s previous stance, as frustration grows over U.S. tariffs on key exports like autos and steel.
• Japan’s top trade negotiator held tense talks in Washington, with both sides aiming for a deal by June but admitting significant disagreements remain.
• Analysts suggest Japan’s subtle threat could strengthen its negotiating position, though an actual sell-off would risk market instability.
• The situation highlights the high-stakes trade brinkmanship under Trump, with even close allies considering aggressive tactics.

Japan’s Finance Minister Katsunobu Kato has openly acknowledged that the country’s vast holdings of U.S. Treasury bonds could serve as a bargaining chip in tense trade negotiations with the Trump administration. The remarks, made during a televised interview on Friday, mark the first time Japan has explicitly floated the idea of leveraging its $1.13 trillion in U.S. debt as a strategic tool. “It does exist as a card,” Kato said on TV Tokyo. “Whether or not we use that card is a different decision.” While he stopped short of threatening a sell-off, the statement underscores Japan’s growing frustration with President Donald Trump’s aggressive tariff policies, which have targeted key Japanese exports like automobiles and steel.

A shift in tone

Kato’s comments represent a notable departure from Japan’s earlier stance. Just weeks ago, officials in Tokyo dismissed the notion of weaponizing Treasury holdings, emphasizing Japan’s role as a stable U.S. ally. But with Trump’s 25% auto tariffs set to take effect and a 10% baseline tariff already imposed, Japan appears to be reassessing its options. The shift comes as Japan’s top trade negotiator, Ryosei Akazawa, concluded a second round of talks in Washington with U.S. officials, including Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer. Akazawa described the discussions as frank but acknowledged significant gaps remain. “We agreed to arrange a date for the next high-level meeting, aiming to accelerate the talks from mid-May,” he said, aiming for a deal by June.

The Treasury card

Japan and China are the two largest foreign holders of U.S. debt, giving them outsized influence over global bond markets. While Japan has historically avoided using its Treasury reserves as leverage, analysts say Kato’s remarks signal a hardening stance. “Playing the card early, while the U.S. bond market is in the minds of the administration after recent weeks, is a smart move,” said Martin Whetton, a strategist at Westpac. “They don’t have to do anything. But they can put themselves in a solid position to negotiate.” The mere suggestion of a sell-off could rattle markets. In April, Treasury yields spiked after Trump announced sweeping tariffs, raising concerns about foreign creditors losing confidence in U.S. debt. Though Japan’s holdings actually increased in February, Kato’s rhetoric introduces new uncertainty. For Japan, the tariffs pose a dire threat. Auto exports account for over a third of its U.S. trade, and one Japanese automaker is already “losing $1 million an hour,” Akazawa revealed. Prime Minister Shigeru Ishiba, facing a July election, cannot afford to alienate rural voters reliant on agriculture, another sector vulnerable to U.S. demands. Meanwhile, Trump’s team is under pressure to deliver wins ahead of the 2026 midterms. The administration has paused its “reciprocal tariff” plan for 90 days, but Bessent has warned allies that the reprieve is temporary.

A delicate balance

Experts caution that Japan is unlikely to dump Treasuries outright as doing so would destabilize markets and devalue its own reserves. For now, Japan’s strategy seems to be one of calibrated pressure. As Akazawa put it: “We have no intention of engaging in negotiations that would harm our national interests.” With talks set to intensify in May, Japan’s rare invocation of its Treasury holdings reveals the high-stakes brinkmanship defining global trade under Trump. Whether the move forces concessions or backfires remains to be seen. But as Kato’s remarks show, even America’s closest allies are no longer ruling out hardball tactics. Sources for this article include: Bloomberg.com Bloomberg.com ABCNews.go.com Reuters.com

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