Reference News Network, February 17 report: On February 5, the Spanish Elcano Royal Institute website published an article titled "The Risk of 'Selling Japan' May Evolve into 'Selling the US'", authored by Judith Anar, a senior researcher at the Elcano Royal Institute. The following is an excerpt:
The current financial tensions in Japan are not the result of a one-time shock, but rather the outcome of long-term structural factors and recent economic policy shifts (including monetary and fiscal policies).
For decades, Japan has experienced weak economic growth, with a significantly deteriorating demographic structure, and public spending related to an aging population (especially pensions and healthcare) has continued to rise.
For a long time, the Bank of Japan played a stabilizing role, maintaining an extremely loose monetary policy for many years, which prevented the structural deterioration of public finance from triggering significant financial turmoil.
However, this situation has changed significantly since 2024. The Bank of Japan initiated a gradual and sustained process of monetary policy normalization, with multiple interest rate hikes pushing the benchmark rate to around 0.8%. The shift in monetary policy directly increased the cost of financing for the public sector, while Japan's fiscal spending needs have not decreased, but may even further expand.
From January 2024 to January 2026, the Japanese government bond yield curve shifted upward overall, with particularly notable increases in the long-term yields. The upward shift and steepening of the yield curve indicate that the market is reassessing the fiscal risks and debt sustainability of a country with a very high ratio of public debt to GDP.
2025 international comparative data clearly show that Japan has the highest total debt in the world, while the difference between its total debt and net debt is far greater than that of the United States and major European economies. Official documents from the Ministry of Finance of Japan and international analyses emphasize that Japan's net debt calculation has deducted public assets, including foreign exchange reserves and other financial assets, which include parts related to social security and pension systems. In other words, Japan is not only a large issuer of debt, but also a major holder of assets. Combined with its national savings behavior, this structure becomes more understandable: Japan's overall savings rate is relatively high in international comparisons, historically providing a domestic financing base for the public sector.
The structure of holders of Japanese public debt further confirms this. A considerable proportion of Japanese public debt is held by domestic entities, among which the Bank of Japan holds a prominent share. After years of asset purchase operations, the Bank of Japan now holds an extremely high proportion of outstanding Japanese government bonds.
Simply looking at the total debt scale is not sufficient to fully explain Japan's financial vulnerability; the public sector's balance sheet and domestic investment base at least partially buffer the typical risk of sudden capital interruption.
Therefore, the focus of analysis needs to shift: the core risk of the current Japanese financial turbulence is not strictly a Japanese fiscal crisis, but rather global financial stability risks associated with the massive overseas assets held by both the public and private sectors in Japan. In the context of rising domestic yields and upward-sloping yield curves, market adjustments may not occur in the form of default or immediate fiscal dominance, but could take the form of capital repatriation, liquidation of hedges, portfolio rebalancing, and create tension in global markets where Japan is a structural investor. It is precisely at this stage that "selling Japan" could quickly evolve into "selling the US".
To understand the global impact of Japan's financial tensions, it is necessary to acknowledge its position as a global structural creditor (particularly as the key creditor of the US). Japan is the largest foreign holder of US Treasury bonds, surpassing other major developed economies.
This position makes any disorderly adjustment in Japan potentially pose a risk to the US Treasury market, which remains a cornerstone of the global financial system. In the context of rising domestic yields and increasing pressure on the yen, Japanese investors' motivation to hold large US Treasury portfolios to hedge against exchange rate risks decreases. In this scenario, partial return of Japanese capital, or adjustments to asset portfolios by banks, insurance companies, and funds, could push up US Treasury yields.
This risk should not be interpreted as a sudden collapse of the US Treasury market, but in the context of the US itself having high fiscal deficits and a debt trajectory highly dependent on the market's ability to absorb large volumes of newly issued bonds, this undoubtedly constitutes an additional vulnerability factor. Given the systemic importance of US Treasuries as a global risk-free asset, their sustained yield increases not only affect the US economy itself, but also influence the global financial environment, asset valuations, and financial stability through secondary transmission effects. In economies with extremely high debt levels, further deterioration of public finances not only exacerbates domestic market tensions but can also become a catalyst for international financial instability.
It is precisely at this level that Japan is no longer just a country-specific case. Given its status as a global creditor and its weight in the international financial market, Japan's fiscal crisis could trigger portfolio adjustments and capital flows, affecting systemic assets, especially the US Treasury market, through secondary effects. "Selling Japan" is becoming a magnifier of global financial tensions, testing the resilience of the highly interconnected international financial system. (Translated by Han Chao)
Original: toutiao.com/article/7607774479750431232/
Disclaimer: This article represents the views of the author alone.