[Text/Observer Network Wang Yi] Japanese Finance Minister Kato Katsunobu, who had just "bared his teeth" and hinted at using Japan's held US Treasury bonds as a trade negotiation card last week, has retracted his statement, saying "We do not consider selling US Treasuries as a means of negotiation with the US."

On May 4 local time, Kato Katsunobu emphasized while attending the 28th ASEAN Plus Three (10+3) Finance Ministers and Central Bank Governors Meeting in Milan, Italy, that Japan holds the largest scale of US Treasuries globally, "to ensure sufficient liquidity and prepare for necessary foreign exchange transactions to achieve currency stability within our country."

"This is our position, and we do not intend to use the sale of US Treasury bonds as a bargaining chip," Kato Katsunobu reiterated.

On April 24, Japanese Finance Minister Kato Katsunobu held a press conference after talks with US Treasury Secretary Beasant. Visual China

Kato Katsunobu made this statement to clarify his remarks on Tokyo TV on May 2. At that time, he said that Japan's held US Treasuries could be used as "a card" in trade negotiations with the US, "whether or not we use this card is another matter."

According to data from the US Treasury Department, as of February this year, Japan holds nearly $1.13 trillion in US Treasury bonds, making it the largest overseas holder of US debt, followed by China, which holds $784.3 billion.

When Kato Katsunobu initially made his statement, Japanese Minister of State for Economic Revitalization Akira Akazawa was in Washington D.C. for the second round of bilateral tariff negotiations with US Treasury Secretary Beasant.

The Financial Times described Kato Katsunobu's remarks on April 2 as an "uncommon display of teeth" (in a rare baring of teeth), stating that he had just participated in the Japan-US tariff negotiations the previous week and now made such comments at this time, breaking Japan's long-standing extremely cautious habit regarding holding US Treasury bonds. The report cited analysts as pointing out that "the smooth Japanese finance minister discussing Japan's biggest asset when dealing with the US on national television" indicates "increasing confidence among Japan's elites in dealing with the US."

However, it didn't take long before he withdrew his tough stance.

Regarding Kato Katsunobu's so-called clarification, Professor Kazuo Suzuki of the Graduate School of Public Policy at the University of Tokyo bluntly stated, "I don't understand." He pointed out, "I don't know if there was some kind of mistake made by Finance Minister Kato Katsunobu somewhere. When considering negotiations with the US, US Treasury bonds are undoubtedly a trump card, though not one that can be easily played," "I thought he knew this when he made this statement, but it seems that is not the case," "weakening your negotiating position in this way is not a good idea."

The Financial Times analysis suggests that although there is no sign yet that Japan is considering selling its official-held US Treasury bonds, even referring to such actions as "cards" may exacerbate volatility in the US bond market. Since Trump announced comprehensive "reciprocal tariffs" against US trading partners on April 2, US Treasury bonds have been heavily sold off, and the US bond market has been fluctuating violently, recovering only partially after Trump announced a 90-day suspension of tariff collection.

After Trump announced comprehensive tariffs on April 2, US Treasury yields surged. Chart by the Financial Times

Shoichi Omori, chief strategist at Mizuho Securities in Tokyo, pointed out that Japan mentioned both US Treasuries and ongoing tariff negotiations in the same sentence, "undoubtedly opening Pandora's box." If foreign investors really abandon purchasing or sell US Treasuries, the risks for US Treasury investors will increase.

Axios, a US political news website, analyzed that if Japan or other major holders of US Treasury bonds start selling, US interest rates may rise, which in turn would make financing the country's huge budget deficit more difficult and put pressure on home buyers and business borrowers in the US. At the same time, Japan's strategy might also bring costs and risks to sellers, as it could reduce the value of their held bonds and cause significant chaos in the currency market.

"This is a very serious strategy, not suitable for public discussion," said Kathy Jones, chief fixed income strategist at Charles Schwab. Merely threatening could impact the US Treasury market, but she also believes that if Japan's financial officials are smart enough, they won't take this measure that "could harm their own economy."

Bloomberg noted that former Japanese Prime Minister Hashimoto Ryutaro made similar remarks nearly 30 years ago. At that time, he said that if the yen continued to fluctuate, Japan might sell US Treasury bonds and buy gold. However, due to overly intense market reactions, Hashimoto Ryutaro retracted his earlier remarks and claimed he had been misunderstood.

"This is a street fight: promising not to use one of your most powerful and ruthless weapons is both naive and reckless," said Nicholas Smith, chief Japan strategist at CLSA. "You don't need to use the weapon: just wave it around."

This article is an exclusive contribution from Observer Network and cannot be reprinted without permission.

Original source: https://www.toutiao.com/article/7500841827081142795/

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