U.S. Commands Japan To Do The Unthinkable As Bessent’s Debt Auction Faces $22B Buyer Walkout

U.S. Commands Japan To Do The Unthinkable As Bessent’s Debt Auction Faces $22B Buyer Walkout

all right guys so let’s talk about Japan today and how their economy is under tremendous pressure of all the G7 allies Japan is perhaps facing the worst crisis of them all they have a monstrous debt problem over 260% of GDP yes that’s the number and when that bubble pops it’s game over now secondly they are facing very harsh talks with the US in a tariff war trump’s auto tariffs threatened to tear apart Japan’s biggest industry the auto sector apart now Toyota for example is facing a horrific billiondoll profit hit in just two months the company like many other Japanese brands were just too reliant on the US market and now things are starting to unravel and if you’re Japan you’re just focused on the short-term fix nothing you can do about your debt problem today but if you don’t fix the issue with the US now then your economy could really collapse unlike China Japan just doesn’t have much time to wait it out they must take action as soon as possible japan’s revised GDP is out and is not looking good q1 GDP contracted by 0.2% that number has been revised and it is now confirmed and that’s January to March we haven’t even factor in Trump’s reciprocal tariff shock in April q2 should be negative once again which will confirm a recession for Japan’s economy so you can see Japan’s dilemma here like most export-based economies the default way out of a recession is to sell more stuff to the world even the Bank of Japan is uncertain about hiking rates because industries are already on the edge the last thing they need is higher borrowing costs and that’s why Japan is scrambling to get a deal even before the G7 summit they simply cannot wait they don’t have the economic leverage that China the EU or even Canada has and this is where things get tricky japan also needs to keep their exports affordable to the world they just can’t depend on the US market anymore but Besson’s Treasury Department just gave Japan a stern warning the Treasury is asking Japan to hike rates bog tightening should continue growth is too low and inflation in Japan is too high japan has to normalize the yen’s weakness against the dollar and here’s the most important part that betrays the agenda for much needed structural rebalancing or bilateral trade and once again the US doesn’t really care about Japan’s economy the real plan is for Japan to strengthen their currency to crush their own export sector and that in turn will help the US be more export competitive but is Japan really willing to do that and how much further must the yen strengthen for Washington to be happy now according to Deutsche Bank if the US really wants to wipe out the trade deficit with the world it would have to weaken their currency by a whopping 40% then that is simply insane the dollar has already dropped by 10% does that mean another 15 20 or even 30% drop is on the cards because if that’s the case we can all kiss goodbye to the value of US assets and the entire financial system we are heading back to why my Germany style but does Besson have a point japan does indeed have an inflation problem no denying it is much higher than the entire G7 block even higher than the US and because of that is hammering Japanese consumption down people in Japan are just not spending enough money now the US says strengthening Japan’s currency will fight inflation and that makes sense a stronger yen means cheaper imports but it’s not that simple the yen started to strengthen from July 2024 but Japan’s household spending was still collapsing even in March despite the base effect spending contracted by 0.1% sure the yen today is stronger so imports will cost less japan can import stuff at a cheaper rate but that alone doesn’t determine spending will suddenly rebound higher and just like any other country consumer behavior is reflective of the economy in general and now that Japan is one foot in the coffin about to enter a recession does it make people more or less likely to spend money now fighting inflation is paramount but there’s a reason why the BOJ isn’t hiking rates just yet the sequence of events is really critical here first the tariffs will have to drop so Japan’s export economy can recover only then can you try to raise rates to strengthen the yen to fight inflation now Nori Chukin Bank agrees and points out what Besson just doesn’t understand here consumer spending is unlikely to help drive the economy when the impact of tariffs is expected to hit external demand there’s also no link between higher wages and inflation at least for Japan the only way out now the path with the least collateral damage is for tariff removal but will the US do it even Lnik has admitted that the US might not be seeking just reciprocal trade there’s more to it than that producing but I want to get back to reciprocity you just you just said you don’t believe in you don’t accept reciprocity as a goal what are you negotiating in these trade deal why would we open our bank account and their bank accountating trade deals you’re trying to get other countries to lower their trade their tariffs and trade barriers in return for us lowering ours are you or are you not seeking reciprocity in these trade deals we are thinking we are absolutely seeking reciprocity with respect to things that can be reciprocal but when they’re importing from China and sending you said that if a country came to you and offered you the ultimate reciprocity no tariffs no trade barriers in return for us doing the same you would reject that of course because they buy from China and send it to us don’t you agree with that they said we won’t buy it from China now we’re talking so will Japan listen to US orders and contain China will the BOJ hype interest rates just to help the US export more to the world now I find this highly unlikely in the latest negotiations with Japan even the dream team couldn’t agree amongst themselves lnik Besset and Guer were all disagreeing with each other that’s how dysfunctional the American team is by itself and according to reports they even put the talks on hold at one point with Japan to quarrel amongst themselves and it seems they were all competing for credit from Donald Trump and this is just so bizarre right this is the exact same squad being sent to London for talks with China now Japan needs to find a way to arm twist the US to drop the terrorists they can’t just wait for the US China talks to pan out it could take days weeks or even months who knows tokyo just doesn’t have the time japanese lawmakers are thinking of using the expansion of the Trans-Pacific Partnership as leverage basically to remind the US that Japan might even start including China and Taiwan into the group now will this work no one knows trump is very mercurial and he’s very different from his first term if he’s insistent on reshoring the steel and car industry nothing Japan does can change that trajectory but when it comes to currencies I believe it will be a cold day in hell japan themselves can’t afford to hike rates not when their own bond market is in danger rates in Japan are already going through the roof the Bank of Japan is being forced into a corner and there’s a big internal debate whether to slow the pace of bond buying reductions to just 200 billion yen per quarter since December 2024 the Bank of Japan has been selling off their bond holdings net on net the fact that they are slowing down the reductions show there’s still a need to support the bond market well that’s what happens when you do yield curve control the endless buying of bonds for over a decade sooner or later you’ll get trapped and whatever you do something in the system will break but speaking of bond markets breaking the US is about to face a reckoning of its own and that shouldn’t be a surprise if you kept up with the Treasury auction the Treasury action over the past few weeks investors around the world are extremely skeptical about holding US bonds no one really trusts the US to get their fiscal house in order and that’s a fancy way of saying Washington is still spending money like drunken sailors and no matter who Trump sends to sell the dream it’s just not working whether it’s Lnik Besson or now Mike Johnson anyone can see through the denial the one big Well this is adding a lot to the de to the national debt no it’s not no it’s not i mean I mean it is i mean it’s not the CBO is is arguing that if we extend and make permanent existing tax cuts that’s going to add to the deficit what what we’re doing in this bill is cutting $1.6 trillion of spending it is government spending that creates the deficits we’re going to reduce the deficit with Debt’s going to be higher at the end of this even at this point not with our pro growth policy as a bond holder or someone looking to buy US debt you’d be horrified there are no guardrails left when it comes to national spending everyone is singing the same tune trump has very strong control of the narrative so we can expect the bill to pass with minimal modifications so the bill is going to add anywhere upwards from $2.4 trillion to the national debt credible independent sources are all projecting that increase according to the Tax Foundation Trump is willing to trade $2.6 trillion in national debt increase for 0.8% boost to GDP and this should also create nearly a million jobs this is basically borrowing money from the future to fund economic growth today Trump is hoping for the tax cuts to balance out the heat from the tariffs and to reshore industries now on paper can this work sure it can but it’s predicated on two big assumptions and they must all come true there must be a fairy tale ending with the fairy godmother smiling and waving her magic wand now firstly countries need to reshaw industries to the US but with business uncertainty through the roof that part is going to be a mighty challenge secondly bond yields cannot possibly go higher because it will crush the US economy and blow up the national debt even further the debt market is about to face a crucial test this is the big problem besson will be selling $22 billion worth of ultra long 30-year government bonds to global investors it’s part of the schedule issuance but still a serious barometer for investor confidence should the auction crash and burn the message will be unamiguous global investors are done lending money to the US government it will be a rebuke is a signal that US inflation will become a structural problem that gets worse while deficit spending will continue to go out of control now the 30-year auction will be a direct referendum on US government spending i mean just think of this statement i am willing to lend the US government money for 30 years at say 5% because I believe they will keep long-term real inflation below that and do you know how ridiculous that sounds today more importantly we have to watch if foreign investor demand is still there or not because if it isn’t then it’s the beginning of a much much deeper problem in the previous debt auction domestic buyers were the problem they bought only 14% of the bonds versus the 6 months average of 17% people were simply afraid of inflation but if international buyers really start to shun US debt it’s a sign that the dollar itself is the problem foreign money would be betting that the dollar will continue to drop and stay down for the long term and when it comes to long-term bonds the Federal Reserve has little to no influence it’s all about market dynamics supply and demand at its most brutal now my guess is that the auction will face serious issues if Trump really wants to bring back US manufacturing he will have to break a lot of eggs and flip over the entire trading order the US current account deficit is still at an incredible level at minus 3.8% of GDP to reverse that to zero will take a titanic effort the main trust will be Americans buying domestic products so inflation will get structural it will also involve buying less from the world so dollars flowing to the global economy will dry up as well now exporters have less money to recycle back into American stocks and bonds and I think you get the picture if investors see this as an outcome which is very possible they will just dump their bonds now or simply refuse to buy new ones and neither outcome will be good for Trump or the national debt he wants to cut off the world but ironically he still needs global investors to buy in but let me know what you think will Japan listen to US orders and will investors really give US debt a fighting chance let me know in the comments below stay safe be sure to smash the like button and subscribe as we navigate through this crazy times

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In a major update, the US Treasury wants Japan to strengthen their currency. But is it really to save Japan’s economy or to help US exports be more competitive? Meanwhile, a critical bond auction of the US 30-year Treasury is coming up. But with the fiscal disaster looming, there is a good chance of demand crashing down.

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✅ Timestamps & Chapters:
0:00 U.S. Instructs Japan
2:52 But Japan’s Economy Is Trapped
6:10 Can Japan Push Back Trump’s Tariffs?
8:44 US Bond Auction Face Meltdown
11:33 Will Foreign Buyers Shun US Debt?

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