Quoth the Raven
· QTR’s Fringe Finance
· May 27, 2026 at 20:58
· ⏱ 5 min read
| Read on Substack ↗
Summary
Japan's repeated interventions to prop up the yen by selling U.S. Treasuries are unsustainable because they risk triggering a feedback loop of higher U.S. yields, a weaker dollar, and worsening stagflation. The article argues that the combination of Japan's massive debt, ultra-loose policy, and global forces like oil shocks and de-dollarization will eventually force a painful reckoning, with negative implications for bond markets and positive implications for hard assets like gold.
•Japan shed about $47 billion in Treasuries in March, dropping holdings to $1.191 trillion, to defend the yen amid surging energy import costs.
•The 30-year U.S. Treasury yield recently pushed above 5.2%, its highest since 2007, while the 10-year climbed toward 4.7%.
•China also reduced its Treasury holdings to $652 billion in March, the lowest since 2008, as part of a broader foreign retreat from U.S. debt.
•The Bank of Japan cannot raise rates aggressively because its economy is sensitive to hikes after decades of zero-interest rate policy, and its own massive QE has distorted JGB markets.
•Japan's Treasury sales feed into a U.S. bond market already flashing warning signs due to sticky inflation, geopolitical oil spikes, and endless fiscal deficits.
•A reversal of the yen carry trade (caused by rising JGB yields) could trigger a global margin call, as that carry trade has propped up global assets for years.