Asia-Pacific Business Brief: Japan Signals Support for Stronger Yen, Urges Caution on U.S. Treasury Holdings Amid Trade Talks

TOKYO — In a pivotal policy signal ahead of a high-stakes trade dialogue with Washington, Japan’s ruling Liberal Democratic Party has called for steps to reinforce the yen while urging restraint over the politically sensitive issue of U.S. Treasury holdings.

Itsunori Onodera, chairman of the party’s Policy Research Council, emphasized on Sunday that the Japanese government must take tangible actions to strengthen the nation’s currency — not through market interventions, but by bolstering domestic industrial competitiveness. Speaking on public broadcaster NHK, Onodera addressed growing domestic concerns over the prolonged depreciation of the yen, which has fueled inflation and strained household budgets.

“The weak yen has been among the factors pushing up prices,” Onodera stated. “To strengthen the yen, it’s important to strengthen Japanese companies.”

His remarks come as Tokyo prepares for a new round of bilateral trade negotiations with the United States this week. The discussions are expected to delve into currency policy — a historically sensitive subject — with some Japanese officials anticipating that the U.S. will press Tokyo to allow the yen to appreciate.

Treasuries Not a Bargaining Chip, Lawmaker Warns

Amid increasing geopolitical and economic tensions, Onodera dismissed suggestions from opposition leaders that Japan should leverage its significant holdings of U.S. Treasuries in retaliation for recently imposed U.S. tariffs.

“As a U.S. ally, the government shouldn’t think about intentionally using U.S. Treasury holdings,” he said, rejecting calls to use the $1.079 trillion cache as a pressure point in negotiations.

The comments underscore a cautious approach from Tokyo at a time when the financial markets are reeling from the latest tariff actions by President Donald Trump. The levies on Japanese automakers triggered the most volatile trading stretch in global markets since the early pandemic era, with U.S. bond prices, gold, oil, and equity indices swinging sharply.

Market watchers were particularly alarmed by a significant sell-off in U.S. Treasuries — widely seen as the world's safest investment — in Asian trading hours last Wednesday. The volume and timing of the transactions prompted speculation that China may have offloaded part of its holdings, stirring fears of a broader sell-off among major U.S. debt holders.

Pressure Mounts on Currency and Monetary Policy

The yen, which touched nearly 160 to the dollar in recent years amid Japan’s ultra-loose monetary stance, has recently rebounded. On Friday, the yen rallied to 142.89 against the dollar — its strongest level since last September — following a broader retreat in the greenback.

Tokyo’s recent interventions in 2022 and 2024 to support the yen marked rare moves in the currency market, highlighting the deep concern among policymakers over the inflationary effects of a weak yen.

The Bank of Japan’s gradual approach to raising interest rates, still trailing far behind the U.S. Federal Reserve, remains under international scrutiny. Some analysts believe that Washington may press Tokyo not only on trade and currency, but also on the pace of monetary tightening.

This week’s negotiations will feature Ryosei Akazawa, Japan’s minister for economic revitalization, who is scheduled to meet U.S. Treasury Secretary Scott Bessent on Thursday, according to sources close to the talks.

Japan’s Balancing Act

Japan remains the single largest foreign holder of U.S. government debt, ahead of China. The idea of weaponizing this financial position has long been considered taboo in Tokyo, given the deeply intertwined nature of the two economies and Japan’s strategic reliance on its alliance with the United States.

While Japan's policymakers appear determined to preserve economic stability and alliance cohesion, the calls for a stronger yen reflect growing unease among consumers and businesses alike. With inflation surging and political pressure mounting ahead of the fiscal review, the direction of Japan’s currency and trade policy will be closely watched in the coming weeks.