The acceleration of Sino-US trade negotiations, Japanese finance minister hints that holding US Treasury bonds may become a bargaining chip in negotiations.

Japanese Finance Minister Taro Kato stated that Japan holds a large amount of US Treasury bonds, making it the largest foreign holder of US debt, which could be used as a "card" in trade negotiations with the United States. This week, Japan's chief negotiator Ryosei Akazawa is in Washington for the second round of talks with US representatives, and after the latest round of talks, Akazawa stated that Japan's goal is to reach a trade agreement with the United States in June. When asked if Japan's position of not selling US debt could be used as a negotiating tool, Taro Kato responded, "This is indeed a 'card,' whether or not to use this 'card' is another matter." While these remarks were simply a response to a question and did not indicate that Japan is considering selling its US Treasury holdings, any action taken by Japan could potentially cause significant market volatility. Casey Jones, Chief Fixed Income Strategy Strategist at Charles Schwab, pointed out, "Openly discussing such a strategy is a very serious matter. Just the threat of such a move could affect the US Treasury market, but I believe that Japanese officials are wise enough to understand that actually implementing this measure could harm their own economy." The market's initial reaction on Friday was relatively calm. However, Japan's influence in the US Treasury market is likely to keep investors cautious. According to data from the US Treasury Department, as of the end of February, Japan held around $1.13 trillion in US Treasury bonds, making it the largest foreign holder of US debt, followed closely by China with $784 billion. Japan holds US bonds as part of its special account and can use them to support foreign exchange interventions. In the past, Japanese officials have been very cautious when discussing US Treasury holdings, fearing any remarks may have unforeseen consequences on the market. Therefore, Taro Kato's remarks are particularly noteworthy. In addition, in the past month, due to investors reacting to escalating trade war risks, US Treasury trading has been volatile. About thirty years ago, then-Japanese Prime Minister Ryutaro Hashimoto stated that if the yen continued to fluctuate significantly, Japan could sell US bonds and buy gold. This statement caused a major drop in US bonds, US stocks, and even the US dollar. Given the strong market reaction, he quickly retracted his statement and issued a statement saying he had been misunderstood. Taro Kato's remarks differ from the comments made by Itsunori Onodera, the policy chief of the ruling party, in April. Onodera stated at the time, "As allies, we will not intentionally take actions detrimental to US Treasury bonds, as causing market chaos is definitely not a good idea." Martin Whitten, Head of Financial Market Strategy at Westpac Banking Corp., commented on Taro Kato's remarks, saying, "This is a veiled threat. As Theodore Roosevelt said, 'speak softly and carry a big stick,' and US Treasury bonds are that 'big stick.'" Taro Kato also stated that Japan's ownership of US Treasury bonds is not specifically to support the United States. This week, Japan's chief negotiator Ryosei Akazawa is in Washington for the second round of talks with US representatives, and the world is watching the outcome of the negotiations. Akazawa stated that Japan aims to reach a trade agreement with the United States in June, and it is expected that this high-risk bilateral discussion will make progress in mid-May. Akazawa stated after the meeting in Washington on Thursday, "We had specific discussions on expanding bilateral trade, non-tariff measures, and economic security cooperation. We have agreed on the date of the next high-level meeting, aiming to accelerate the negotiation process starting in mid-May." There is no indication that Akazawa discussed Japan's foreign exchange reserves in the talks in Washington. He stated that the parties did not discuss foreign exchange, national security, or China issues. In April of this year, Trump suddenly announced a suspension of his so-called equal tariffs for 90 days, which had led to a massive sell-off of US Treasury bonds. Shoko Mori, Chief Trading Desk Strategist at Mizuho Securities Co. in Tokyo, stated, "Bringing up US Treasury bonds in conjunction with potential trade agreements is certainly opening up Pandora's box. If foreign investors truly start refusing to buy - or even selling - US Treasury bonds, the risk of overall yield increase for US bond investors will rise."