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Japan may use US Treasury bonds as card in tariff talks with Washington

02 May 2025 09:00 (UTC +04:00)

Japan could use its $1 trillion-plus holdings of U.S. Treasuries as a card in trade talks with Washington, its finance minister said on Friday, raising explicitly for the first time its leverage as a massive creditor to the United States, APA reports citing Reuters.

While Finance Minister Katsunobu Kato did not threaten to sell holdings, his remarks touch on a critical concern global investors have about what Japan and China, the two largest owners of U.S. government debt, might do in seeking tariff concessions from the Trump administration.

The Treasury market saw a huge global sell-off last month after U.S. President Donald Trump's decision on April 2 to slap sweeping tariffs on trading partners, including key strategic allies such as Japan.

Kato said in a television interview the primary purpose of Japan's U.S. Treasury holdings - the largest in the world - is to ensure it has sufficient liquidity to conduct yen intervention when necessary.

"But we obviously need to put all cards on the table in negotiations. It could be among such cards," he said when asked whether Japan, in trade talks with the U.S., could reassure Washington it will not sell its Treasury holdings in the market.

"Whether we actually use that card, however, is a different question," Kato added.

The U.S. Treasury Department did not immediately respond to Reuters' request for comment outside of office hours.

Kato's remarks contrast with those he made last month, when he ruled out using Japan's U.S. Treasury holdings in trade negotiations.

On Friday, Kato declined to comment on whether Tokyo's U.S. bond holdings came up in his bilateral meeting with Treasury Secretary Scott Bessent last week.

However, he said the huge market sell-off in Treasuries in April likely affected Washington's approach in talks with Japan.

Japan's and China's presence in the Treasury market makes them a huge point of attention whenever U.S. yields spike, although little is known about their trading activity.

While Japan, as a close U.S. ally, is seen as less likely to use its Treasury holdings as a bargaining tool, some analysts speculate that China may liquidate its holdings as a "nuclear" option as trade tensions with the U.S. escalate.