Japan Vows Not to Use US Treasuries as Trade Leverage

Japan has declared that it will not utilize its holdings of US Treasuries as a bargaining tool in the upcoming trade negotiations with the United States, scheduled for April 17. This stance underscores Japan's dedication to preserving its alliance with the US and preventing actions that could destabilize financial markets. Itsunori Onodera, the policy chief of the Liberal Democratic Party, stressed that Japan, as a close ally, would not intentionally act against US government bonds, as this could disrupt the market and is not a wise move.

The recent retreat from US Treasuries has resulted in a notable increase in longer-term yields, the most significant rise since the start of the pandemic in 2020. This market shift has exacerbated losses in what is usually seen as a safe haven during financial instability. Some investors have hypothesized that global reserve managers, including China, might be re-evaluating their positions in US government debt due to the impact of US President Donald Trump’s trade policies.

Japanese negotiators are seeking exemptions from the reciprocal tariffs that took effect on April 9. The US, in contrast, is advocating for concessions on agricultural products and liquefied natural gas. Japan, traditionally a close ally of the US, has been subjected to a 24% tariff rate, while its auto industry, a key component of its economy, faces a 25% tariff.

Onodera proposed that Japan should address the issue of US tariffs with the World Trade Organization. He also pointed out the difficulties faced by regional neighbors, many of which have been subjected to some of the highest tariffs globally. Onodera stated that Japan would work to enhance cooperation among the Association of Southeast Asian Nations.

The decision by Japan to refrain from using its US Treasury holdings as leverage in trade negotiations reflects a strategic approach to maintaining economic stability and diplomatic relations. By avoiding financial measures that could destabilize markets, Japan aims to create a more cooperative and less confrontational environment in its trade discussions with the US. This approach is likely to be viewed as a stabilizing factor in the ongoing trade tensions, as it prevents the conflict from escalating into a broader financial dispute.