QUESTION: Mr. Armstrong, I perceive you’re deeply concerned in analyzing the unfolding debt disaster in Japan, and the mainstream media not often appears to know the state of affairs the best way you do. I might enormously admire any feedback or insights you possibly can share on what is occurring right here in Japan and the place you consider this disaster is headed.
Aikra
REPLY: I hope you’re doing properly. 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 assist difficult the 1987 Crash Ranges.
Sure, I believe even the Fed doesn’t fairly grasp the extent of the actual drawback. The media is claiming that the Fed is intervening to forestall Japan from promoting US bonds. That simply exhibits their ignorance.
The U.S. has not too long ago taken motion to assist 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 means. Throughout a live-streamed cupboard assembly, he was photographed holding a notice 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 have been additionally promoting {dollars} to assist their very own currencies.
Right here is the place the so-ca;;ed analysts the press turns to reveals that they’re really clueless. They declare that analysts largely agree that the U.S. intervention was not primarily about aiding Japan, however about defending its personal monetary stability. The core concern was {that a} collapsing yen would pressure Japan to promote its huge holdings of U.S. Treasury bonds to fund its personal forex protection.
Japan is the most important international holder of U.S. debt, with over $1 trillion in Treasuries. Nonetheless, the issue with this state of affairs is the the majority of the US Treasuries held in Japan are by Japanese corporates, not the federal government, and I’ve reported that truth quite a few instances. They use this as a hedge towards their very own authorities. However after all, these analysts are all the time bearish the greenback so that they see this as a determined wat to avoid wasting the greenback reasonably than the truth that Japan is in bother and their Debt to GDP is the very best among the many main economies. I said clearly within the Japanese Institutional Report from earlier this yr:
“The sovereign debt disaster has begun, and as soon as confidence begins to crack, governments in every single place will uncover that there is no such thing as a such factor as countless borrowing.”
The greenback bears spin this because the U.S. intervention is a “monetary containment” technique to forestall a disaster in Japan from triggering a wave of U.S. asset promoting and destabilizing the American economic system. They declare that if Japan have been to promote these bonds en masse to assist the yen, it could drive U.S. bond costs down and long-term rates of interest up, which is the precise reverse of what the U.S. wants. In addition they declare that is a part of the ongoing warfare and a disaster of confidence within the Federal Reserve. They act as if the EU and Japan are higher locations to place cash. That is simply their perpetual bearish greenback bias that they’ve been calling for a crash for many years. When the greenback didn’t crash after Nixon took the greenback off the gold normal on August fifteenth, 1971, then they created the Petrodollar nonsense that the greenback rose as a result of it was backed by pricing oil in {dollars}. The wealth of ANY nation is its folks. The productiveness of america is way better than Europe any day of the weak.
Thus, the greenback bears insist the U.S. is “supporting” Japan solely to the extent that it prevents a Japanese monetary disaster from changing into an even bigger drawback for america. They’ve zero understanding of the world economic system and that if they really had entry to the information from Japan, they’d see that Japanese corporates maintain extra US Treasury bonds than the federal government. Japanese non-public sector traders (corporates) maintain extra U.S. Treasury bonds than the Japanese authorities does as a hedge towards the recklessness of the fiscal mismanagement of the Japanese authorities.
The info exhibits that the entire holdings from all sources in Japan are huge—round $1.14 to $1.24 trillion primarily based on our information. General international holdings of U.S. federal debt are roughly $9.2 trillion. Of that whole, international non-public traders (like firms, pension funds, and people) maintain about 58.1% ($5.4 trillion). Overseas authorities sources (like central banks and sovereign wealth funds) maintain about 41.9% ($3.9 trillion).
Whereas the Japanese authorities, by the Financial institution of Japan, holds a big portfolio as a reserve asset, nearly all of the $1.2 trillion is NOT of their fingers however that of Japanese banks, insurers, and different company traders. These non-public traders purchase U.S. debt due to the upper returns accessible in comparison with Japanese bonds, but additionally as a hedge towards their very own authorities which has labored out rather well.
Omitted of their evaluation of WHY Bessent would intervene, it’s the previous state of affairs of a weaker yen means rising commerce deficit and Japan can then undercut the USA. I’ve had over $3 trillion below contract from Japan and I’ve been coping with this problem for many years.
When Rubin, of Goldman Sachs, was Treasury Secretary, then too I might have anticipated a greater understanding of the world economic system. He was making an attempt to speak the greenback down as soon as agains for commerce. I wrote in 1997 warning that state of affairs led to the 1987 Crash because of the G5 making an attempt to push the greenback down by 40%. They responded.
This can be a chart of the capital flows the set off the 1987 Crash. Japan dumped Treasuries and Equities as a result of the concern was the greenback would fall one other 40% after the Louver Accord. A decrease yen will profit Japanese corporates and Bessent is frightened as soon as once more about commerce.
Plenty of inquiries have additionally requested if I counsel Bessent. There isn’t a level in me writing to Bessent as a result of he was on the opposite aspect of the Russian commerce in 1998 that they blamed me for his or her losses. That is, I consider, a private grudge so it could be pointless writing to him. Soros’ Quantum Fund, misplaced roughly $2 billion on Russian investments. Most of that loss was tied to his funding within the Russian telecommunications firm Svyazinvest, which he later referred to as “the worst funding of my skilled profession.” The Quantum Fund’s belongings reportedly dropped from round $22 billion in 1998 to an estimated $13 billion in 1999, As a result of the FT revealed the forecast that Russia was about to break down in June 1998, they blamed me. I used to be advised a bunch advised the CFTC to close down my firm in retaliation.
This is the reason some states NEED warfare for a distraction from the truth that all the socialistic system is beginning to present its cracks. I’ve warned that Japan could possibly be even the primary to say no.
