Japan is the largest holder of US treasuries, but this situation is unlikely to continue. For a very long time, Japan’s own bonds paid almost nothing in yield, so investors sought higher yields elsewhere, especially in the US. Now however, Japan is being forced to defend the yen, and their own interest rates are rising. This dynamic is very likely to continue, as the oil shock will force up prices and the government will want to stimulate the economy. More and more Japanese investors are likely to choose to bring their money home to invest in their own bond market, where they would be free of currency risk. The yen carrytrade could unwind chaotically as well.
Bond markets are in trouble in many countries, as yields are rising to reflect increased risk. The US is in particular trouble due to its $40trillion of debt. The yield on the 30 year is the highest since 2007, but in 2007, the debt was only $8trillion. The interest bill already exceeds the ridiculously high defence expenditure, and yields will continue to rise with risk. The US will also be competing for capital with the corporate bond market. At some point the US will enter a doom loop, with interest skyrocketing while economic growth collapses. That point might not be far off.
This is of course why the US is pushing stablecoins at the global retail level. Stablecoins are backed with US treasuries, so if enough people could be convinced to covert to those, there would be captive demand for treasuries that would allow the US to support its huge debt. Stablecoins depend on electricity and internet though, and those might not be consistently available in so many places in the future.
It’s increasingly likely that investors will switch to gold as the reserve asset, when trust in US sovereign debt has fully evaporated.
