QUESTION: Mr. Armstrong, I understand you are deeply involved in analyzing the unfolding debt crisis in Japan, and the mainstream media rarely seems to grasp the situation the way you do. I would greatly appreciate any comments or insights you can share on what is happening here in Japan and where you believe this crisis is headed.
Aikra
REPLY: I hope you are doing well. I apologize I could not handle all the corporate calls from Japan. I will send a quick Institution assessment shortly. The Japanese yen has come down to major long-term technical support challenging the 1987 Crash Levels.
Yes, I think even the Fed does not quite grasp the extent of the real problem. The media is claiming that the Fed is intervening to prevent Japan from selling US bonds. That just shows their ignorance.
The U.S. has recently taken action to support Japan, but the press claims this is out of self-interest rather than pure altruism. In late July 2026, the U.S. Treasury took the rare step of intervening in the currency market to help boost the value of the Japanese yen, marking a significant shift in policy. But WHY?
U.S. Treasury Secretary Scott Bessent’s intervention occurred in a very public way. During a live-streamed cabinet meeting, he was photographed holding a note that read, “To do: Buy JPY (yen), 5-10 billion.” Granted, the U.S. Treasury instructed the New York Federal Reserve to sell euros and buy yen, directly participating in the intervention. This was a joint effort with Japanese and South Korean authorities, who were also selling dollars to support their own currencies.
Here is where the so-ca;;ed analysts the press turns to reveals that they are truly clueless. They claim that analysts largely agree that the U.S. intervention was not primarily about aiding Japan, but about protecting its own financial stability. The core concern was that a collapsing yen would force Japan to sell its massive holdings of U.S. Treasury bonds to fund its own currency defense.
Japan is the largest foreign holder of U.S. debt, with over $1 trillion in Treasuries. However, the problem with this scenario is the the bulk of the US Treasuries held in Japan are by Japanese corporates, not the government, and I have reported that fact numerous times. They use this as a hedge against their own government. But of course, these analysts are always bearish the dollar so they see this as a desperate wat to save the dollar rather than the fact that Japan is in trouble and their Debt to GDP is the highest among the major economies. I stated clearly in the Japanese Institutional Report from earlier this year:
“The sovereign debt crisis has begun, and once confidence starts to crack, governments everywhere will discover that there is no such thing as endless borrowing.”
The dollar bears spin this as the U.S. intervention is a “financial containment” strategy to prevent a crisis in Japan from triggering a wave of U.S. asset selling and destabilizing the American economy. They claim that if Japan were to sell these bonds en masse to support the yen, it would drive U.S. bond prices down and long-term interest rates up, which is the exact opposite of what the U.S. needs. They also claim this is part of the ongoing war and a crisis of confidence in the Federal Reserve. They act as if the EU and Japan are better places to put money. This is just their perpetual bearish dollar bias that they have been calling for a crash for decades. When the dollar did not crash after Nixon took the dollar off the gold standard on August 15th, 1971, then they created the Petrodollar nonsense that the dollar rose because it was backed by pricing oil in dollars. The wealth of ANY nation is its people. The productivity of the United States is far greater than Europe any day of the weak.
Thus, the dollar bears insist the U.S. is “supporting” Japan only to the extent that it prevents a Japanese financial crisis from becoming a bigger problem for the United States. They have zero understanding of the world economy and that if they actually had access to the data from Japan, they would see that Japanese corporates hold more US Treasury bonds than the government. Japanese private sector investors (corporates) hold more U.S. Treasury bonds than the Japanese government does as a hedge against the recklessness of the fiscal mismanagement of the Japanese government.
The data shows that the total holdings from all sources in Japan are massive—around $1.14 to $1.24 trillion based on our data. Overall foreign holdings of U.S. federal debt are approximately $9.2 trillion. Of that total, foreign private investors (like corporations, pension funds, and individuals) hold about 58.1% ($5.4 trillion). Foreign government sources (like central banks and sovereign wealth funds) hold about 41.9% ($3.9 trillion).
While the Japanese government, through the Bank of Japan, holds a significant portfolio as a reserve asset, the majority of the $1.2 trillion is NOT in their hands but that of Japanese banks, insurers, and other corporate investors. These private investors buy U.S. debt because of the higher returns available compared to Japanese bonds, but also as a hedge against their own government which has worked out really well.
Omitted in their analysis of WHY Bessent would intervene, it is the old scenario of a weaker yen means rising trade deficit and Japan can then undercut the USA. I have had over $3 trillion under contract from Japan and I have been dealing with this issue for decades.
When Rubin, of Goldman Sachs, was Treasury Secretary, then too I would have expected a better understanding of the world economy. He was trying to talk the dollar down once agains for trade. I wrote in 1997 warning that scenario led to the 1987 Crash thanks to the G5 trying to push the dollar down by 40%. They responded.
This is a chart of the capital flows the set off the 1987 Crash. Japan dumped Treasuries and Equities because the fear was the dollar would fall another 40% after the Louver Accord. A lower yen will benefit Japanese corporates and Bessent is worried once again about trade.
A number of inquiries have also asked if I advise Bessent. There is no point in me writing to Bessent because he was on the other side of the Russian trade in 1998 that they blamed me for their losses. This is, I believe, a personal grudge so it would be pointless writing to him. Soros’ Quantum Fund, lost approximately $2 billion on Russian investments. Most of that loss was tied to his investment in the Russian telecommunications company Svyazinvest, which he later called “the worst investment of my professional career.” The Quantum Fund’s assets reportedly dropped from around $22 billion in 1998 to an estimated $13 billion in 1999, Because the FT published the forecast that Russia was about to collapse in June 1998, they blamed me. I was told a bunch told the CFTC to shut down my company in retaliation.
This is why some states NEED war for a distraction from the fact that the entire socialistic system is starting to show its cracks. I have warned that Japan could be even the first to decline.