Amid rising trade tensions with the U.S., a top Japanese policymaker said Sunday that Japan should not use its vast holdings of U.S. Treasuries as leverage against tariffs imposed by President Donald Trump. Instead, Tokyo should focus on strengthening the yen through industrial competitiveness.
Itsunori Onodera, head of the ruling Liberal Democratic Party’s Policy Research Council, told NHK public broadcaster that Japan, as a U.S. ally, should avoid weaponizing its $1.079 trillion in U.S. government debt—the largest foreign holding in the world. The comment came in response to opposition calls to sell Treasuries as retaliation for new auto tariffs.
Onodera also linked the weak yen to rising domestic inflation, stating, “The weak yen is one factor pushing up prices. Strengthening the yen means strengthening Japanese companies.” His comments signal that Japan views its prolonged yen depreciation as more harmful than any short-term rebound.
As the Bank of Japan maintains ultra-loose monetary policy and the Federal Reserve keeps rates high, the yen recently fell to multi-decade lows. Tokyo intervened in the market in both 2022 and 2024 to buy yen, but with limited effect. The currency has recently rebounded to 142.89 per dollar amid broader dollar weakness.
With bilateral trade talks looming, Japan is preparing to address currency issues and U.S. tariff threats. Economic Revitalization Minister Ryosei Akazawa is scheduled to meet U.S. Treasury Secretary Scott Bessent on Thursday, with exchange rate policy expected to be a key topic.
Financial markets remain volatile. The past 10 trading days were the most turbulent since the pandemic crash of 2020, triggered by Trump's sweeping “reciprocal tariff” plan. A massive Treasury sell-off, possibly involving China, sparked fears of escalating financial retaliation and caused yields to spike.
Trump’s administration has since announced a 90-day delay on new tariffs, possibly influenced by concerns about global Treasury market instability. For now, Japan appears committed to preserving financial diplomacy, resisting internal pressure to take a more confrontational stance.
The next few weeks will be crucial as traders watch how Japan balances its currency policy, economic competitiveness, and geopolitical alignment with Washington.
