President Donald Trump directly raised concerns regarding the weak Japanese yen with Prime Minister Sanae Takaichi last week, as shifting monetary policy in Tokyo threatens US Treasury stability and macro liquidity. According to Japan's Finance Minister Satsuki Katayama, who disclosed the exchange on Friday, the conversation highlighted growing American anxiety over currency depreciation, foreign capital flows, and potential spillovers into risk assets like Bitcoin.
US Debt Exposure and Intervention Risks
Japan remains the largest foreign holder of US debt, holding over $1.1 trillion in Treasury bonds as of May, according to data from the Council on Foreign Relations (CFR). To support the yen after it dropped to nearly 164 per dollar in late July—its weakest level in four decades—Tokyo spent an estimated $167 billion this year, partially by selling Treasuries. Reduced demand contributed to pushing the US 10-year Treasury yield to 5.18% on September 24, as markets monitored broader US Treasury liquidity conditions.
On July 31, the US and Japan conducted a joint yen-buying intervention for the first time since 1998. Treasury Secretary Scott Bessent later warned traders against betting on a weaker yen, stating: "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." Moving forward, Katayama indicated future interventions would tap a Federal Reserve lending line rather than direct Treasury liquidations.
Rising Yields and the Yen Carry Trade
As the Bank of Japan (BOJ) raised its key interest rate to 1.25% on September 18—its highest level since 1995—Japanese bond yields reached multi-decade highs. On Friday, Japan’s 10-year yield hit a 30-year high of 3.115%, while the two-year yield reached a 31-year high of 1.975% on Monday. Higher domestic yields threaten to incentivize Japanese pension funds to swap foreign bonds for domestic securities.
This shift directly impacts global markets via the yen carry trade. During the August 2024 selloff, the Bank for International Settlements (BIS) estimated $250 billion in carry bets existed, resulting in a 12% drop in the TOPIX stock index on August 5 while Bitcoin and Ethereum plummeted as much as 20%. While the yen strengthened 3.7% over three sessions in early September without breaking crypto market structure, Bitcoin traded at $82,873 on Monday, down 2.3% on the day amidst evolving macroeconomic economic catalysts.
Key Takeaways
- $1.1 Trillion in US Debt: Japan is Washington's top foreign creditor, spending an estimated $167 billion this year to defend its currency.
- Multi-Decade High Yields: The BOJ’s rate hike to 1.25% pushed 10-year Japanese yields to 3.115% and two-year yields to 1.975%.
- Crypto Exposure: Historical yen carry trade unwinds erased up to 20% from Bitcoin, which fell 2.3% on Monday to $82,873.
Why It Matters
The interplay between Japanese yield normalization and US Treasury stability represents one of the most critical macroeconomic risks facing risk assets today. If higher domestic yields force Japanese institutional investors to liquidate foreign holdings, US borrowing costs will face sustained upward pressure. For crypto traders, any rapid unwinding of remaining yen carry trades could trigger sudden liquidity squeezes, making BOJ monetary decisions as vital to crypto price action as Federal Reserve policy.
