QUESTION: Mr. Armstrong, I perceive you might be deeply concerned in analyzing the unfolding debt disaster in Japan, and the mainstream media hardly ever appears to understand the scenario the best way you do. I’d tremendously recognize any feedback or insights you may share on what is going on right here in Japan and the place you imagine this disaster is headed.
Aikra
REPLY: I hope you might be doing properly. I apologize I couldn’t deal with all the company calls from Japan. I’ll ship a fast Establishment evaluation shortly. The Japanese yen has come right down to main long-term technical help difficult the 1987 Crash Ranges.
Sure, I feel even the Fed doesn’t fairly grasp the extent of the true downside. The media is claiming that the Fed is intervening to forestall Japan from promoting US bonds. That simply reveals their ignorance.
The U.S. has just lately taken motion to help Japan, however the press claims that is out of self-interest somewhat than pure altruism. In late July 2026, the U.S. Treasury took the uncommon step of intervening within the foreign money market to assist increase the worth of the Japanese yen, marking a major shift in coverage. However WHY?
U.S. Treasury Secretary Scott Bessent’s intervention occurred in a really public approach. Throughout a live-streamed cupboard assembly, he was photographed holding a word that learn, “To do: Purchase JPY (yen), 5-10 billion.” Granted, the U.S. Treasury instructed the New York Federal Reserve to promote euros and purchase yen, straight taking part within the intervention. This was a joint effort with Japanese and South Korean authorities, who had been additionally promoting {dollars} to help their very own currencies.
That is the place the so-called analysts the press routinely quotes reveal simply how little they perceive.
They argue that the U.S. intervention was not primarily about serving to Japan, however about defending America’s personal monetary stability. In line with their idea, Washington feared {that a} collapsing yen would power Japan to liquidate its large holdings of U.S. Treasury securities to defend its foreign money.
That narrative falls aside when you perceive who truly owns these Treasuries.
Japan is the most important international holder of U.S. authorities debt, with greater than $1 trillion in Treasury securities. Nevertheless, I’ve repeatedly identified that almost all of these holdings usually are not owned by the Japanese authorities. They’re held by Japanese firms and personal establishments that use U.S. Treasuries as a hedge towards the fiscal recklessness of their very own authorities. But these analysts ignore that essential distinction as a result of they method each occasion with the identical conclusion—they’re completely bearish on the greenback.
Somewhat than recognizing that Japan is confronting the very best debt-to-GDP ratio of any main financial system, they painting each U.S. motion as a determined try to prop up the greenback. I said clearly within the Japanese Institutional Report earlier this yr:
“The sovereign debt disaster has begun, and as soon as confidence begins to crack, governments all over the place will uncover that there isn’t a such factor as limitless borrowing.”
The greenback bears now declare that U.S. intervention is merely a “monetary containment” technique designed to forestall a disaster in Japan from spilling over into the American monetary system. Their argument is that if Japan had been pressured to dump its Treasury holdings to help the yen, U.S. bond costs would collapse, long-term rates of interest would surge, and the Federal Reserve would lose management of the market. They weave this right into a broader narrative of worldwide warfare and a looming disaster of confidence within the greenback.
The issue is that this evaluation begins with an assumption as a substitute of the information.
These identical commentators have spent many years predicting the upcoming collapse of the greenback. When the greenback didn’t implode after President Nixon suspended gold convertibility on August 15, 1971, they invented the “petrodollar” idea, claiming the greenback survived solely as a result of oil was priced in {dollars}. Their forecasts have constantly been pushed extra by ideology than by knowledge.
The wealth of any nation in the end rests on the productiveness of its individuals. By that measure, the US stays considerably extra productive than Europe. Capital follows alternative, not political slogans.
Consequently, the greenback bears insist that the US is supporting Japan solely to forestall a Japanese monetary disaster from damaging the American financial system. In actuality, they exhibit little understanding of how worldwide capital truly strikes. If that they had entry to the Japanese knowledge, they might instantly see that Japanese firms and personal buyers—not the federal government—maintain the bigger share of U.S. Treasury securities exactly as a result of they search safety from the fiscal insurance policies of Tokyo.
Our knowledge reveals that complete Japanese holdings of U.S. Treasuries are roughly $1.14 to $1.24 trillion. Total international possession of U.S. federal debt is about $9.2 trillion. Of that quantity, roughly 58.1% ($5.4 trillion) is held by international personal buyers—together with firms, pension funds, funding funds, and people—whereas solely about 41.9% ($3.9 trillion) is held by international governments, central banks, and sovereign wealth funds.
These information utterly undermine the simplistic narrative that Japan’s Treasury holdings are primarily an instrument of presidency coverage. A considerable portion represents personal capital in search of security, and that distinction is prime to understanding each Japan’s debt disaster and the worldwide demand for U.S. authorities securities.
Whereas the Japanese authorities, primarily via the Financial institution of Japan, holds a considerable portfolio of U.S. Treasury securities as a part of its international trade reserves, the vast majority of Japan’s roughly $1.2 trillion in Treasury holdings is not owned by the federal government. As a substitute, it’s held by Japanese banks, insurance coverage corporations, pension funds, and different company buyers.
These personal establishments buy U.S. Treasuries not solely as a result of they provide considerably larger yields than Japanese authorities bonds, but additionally as a hedge towards the fiscal insurance policies of their very own authorities—a technique that has confirmed remarkably profitable through the years.
What these analysts utterly omit of their rationalization of why Secretary Bessent would intervene is the longstanding commerce dynamic. A sharply weaker yen provides Japan a major aggressive benefit by making its exports cheaper, widening the U.S. commerce deficit, and permitting Japanese producers to undercut American producers.
There may be nothing new about this subject. I’ve handled greater than $3 trillion underneath advisory contract from Japan over my profession, and I’ve been coping with the implications of yen-dollar coverage and its impression on worldwide commerce for many years.
When Rubin, of Goldman Sachs, was Treasury Secretary, then too I’d have anticipated a greater understanding of the world financial system. He was attempting to speak the greenback down as soon as agains for commerce. I wrote in 1997 warning that situation led to the 1987 Crash because of the G5 attempting to push the greenback down by 40%. They responded.
This can be a chart of the capital flows the set off the 1987 Crash. Japan dumped Treasuries and Equities as a result of the concern was the greenback would fall one other 40% after the Louver Accord. A decrease yen will profit Japanese corporates and Bessent is apprehensive as soon as once more about commerce.
A lot of individuals have additionally requested whether or not I counsel Secretary Bessent. The reply is not any, nor would there be any level in my trying to take action.
To my data, Bessent was on the alternative facet of the Russian commerce through the 1998 disaster, when many market individuals blamed me for his or her losses. I imagine there’s a longstanding private grudge stemming from that interval, which is why I see no objective in writing to him.
George Soros’ Quantum Fund reportedly misplaced roughly $2 billion on its Russian investments. A lot of that loss was tied to its funding within the Russian telecommunications firm Svyazinvest, which Soros later described as “the worst funding of my skilled profession.” The fund’s belongings reportedly declined from roughly $22 billion in 1998 to about $13 billion in 1999.
After the Monetary Instances revealed my forecast in June 1998 warning that Russia was on the snapping point, many individuals related these losses blamed my evaluation. I used to be later instructed that some people urged the CFTC to close down my firm in retaliation. Whether or not that effort was straight linked, I can not independently confirm, the CFTC refused to supply any data on me underneath a FOIA request. However that’s what I used to be instructed on the time.
This is the reason some states NEED warfare for a distraction from the truth that your entire socialistic system is beginning to present its cracks. I’ve warned that Japan might be even the primary to say no.
