QUESTION: Mr. Armstrong, I perceive you’re deeply concerned in analyzing the unfolding debt disaster in Japan, and the mainstream media hardly ever appears to know the state of affairs the way in which you do. I’d tremendously respect any feedback or insights you possibly can share on what is going on right here in Japan and the place you imagine this disaster is headed.
Aikra
REPLY: I hope you’re doing nicely. 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 drawback. 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 not too long ago taken motion to help Japan, however the press claims that is out of self-interest reasonably than pure altruism. In late July 2026, the U.S. Treasury took the uncommon step of intervening within the forex market to assist increase the worth of the Japanese yen, marking a big 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, instantly collaborating 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 principle, Washington feared {that a} collapsing yen would drive Japan to liquidate its huge holdings of U.S. Treasury securities to defend its forex.
That narrative falls aside when you perceive who really owns these Treasuries.
Japan is the biggest overseas holder of U.S. authorities debt, with greater than $1 trillion in Treasury securities. Nonetheless, I’ve repeatedly identified that almost all of these holdings are usually not owned by the Japanese authorities. They’re held by Japanese companies 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 strategy each occasion with the identical conclusion—they’re completely bearish on the greenback.
Fairly than recognizing that Japan is confronting the best debt-to-GDP ratio of any main economic system, they painting each U.S. motion as a determined try and prop up the greenback. I acknowledged clearly within the Japanese Institutional Report earlier this 12 months:
“The sovereign debt disaster has begun, and as soon as confidence begins to crack, governments all over the place will uncover that there is no such thing as a such factor as infinite 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 world conflict and a looming disaster of confidence within the greenback.
The issue is that this evaluation begins with an assumption as an alternative of the info.
These similar commentators have spent many years predicting the approaching collapse of the greenback. When the greenback did not implode after President Nixon suspended gold convertibility on August 15, 1971, they invented the “petrodollar” principle, 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 finally rests on the productiveness of its folks. By that measure, the USA stays considerably extra productive than Europe. Capital follows alternative, not political slogans.
Consequently, the greenback bears insist that the USA is supporting Japan solely to forestall a Japanese monetary disaster from damaging the American economic system. In actuality, they show little understanding of how worldwide capital really strikes. If that they had entry to the Japanese knowledge, they’d instantly see that Japanese companies and personal traders—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 whole Japanese holdings of U.S. Treasuries are roughly $1.14 to $1.24 trillion. Total overseas possession of U.S. federal debt is about $9.2 trillion. Of that quantity, roughly 58.1% ($5.4 trillion) is held by overseas personal traders—together with companies, pension funds, funding funds, and people—whereas solely about 41.9% ($3.9 trillion) is held by overseas governments, central banks, and sovereign wealth funds.
These info fully undermine the simplistic narrative that Japan’s Treasury holdings are primarily an instrument of presidency coverage. A considerable portion represents personal capital looking for security, and that distinction is key to understanding each Japan’s debt disaster and the worldwide demand for U.S. authorities securities.
Whereas the Japanese authorities, primarily by means of the Financial institution of Japan, holds a considerable portfolio of U.S. Treasury securities as a part of its overseas alternate reserves, nearly all 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 traders.
These personal establishments buy U.S. Treasuries not solely as a result of they provide considerably increased yields than Japanese authorities bonds, but in addition 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 fully omit of their clarification of why Secretary Bessent would intervene is the longstanding commerce dynamic. A sharply weaker yen offers Japan a big aggressive benefit by making its exports cheaper, widening the U.S. commerce deficit, and permitting Japanese producers to undercut American producers.
There’s nothing new about this situation. I’ve handled greater than $3 trillion beneath advisory contract from Japan over my profession, and I’ve been coping with the implications of yen-dollar coverage and its affect 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 economic system. He was attempting to speak the greenback down as soon as once more for commerce. I wrote to him in 1997 warning that situation led to the 1987 Crash because of the G5 attempting to push the greenback down by 40%. They responded. The 1997 Asian Foreign money Disaster which started instantly thereafter in July 1997 a couple of weeks later.
This can be a chart of the capital flows that set off the 1987 Crash. Japan dumped Treasuries and Equities as a result of the worry was the greenback would fall one other 40% after the Louver Accord on February 22, 1987. A decrease yen will profit Japanese corporates and Bessent is fearful as soon as once more about commerce.
A lot of folks have additionally requested whether or not I counsel Secretary Bessent. The reply isn’t any, nor would there be any level in my trying to take action.
To my data, Bessent was on the other aspect of the Russian commerce through the 1998 disaster, when many market members 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 function 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 property reportedly declined from roughly $22 billion in 1998 to about $13 billion in 1999.
After the Monetary Instances printed my forecast in June 1998 warning that Russia was on the breaking point, many individuals related these losses blamed my evaluation. I used to be later informed that some people urged the CFTC to close down my firm in retaliation. Whether or not that effort was instantly linked, I can not independently confirm, the CFTC refused to supply any information on me beneath a FOIA request. However that’s what I used to be informed on the time.
This is the reason some states NEED conflict for a distraction from the truth that your complete socialistic system is beginning to present its cracks. I’ve warned that Japan might be even the primary to say no.
