US interest rates will continue their long-term secular rise, or they may rise suddenly, either of which is great news for savers
How Uncle Sam got a banker
World War II is over. America’s got the guns, Japan’s got the ruins. The U.S. cut a deal — military protection for economic cooperation. But the real magic trick came later.
For the next 40 years, Japan rebuilt itself, accumulating dollars and using them for its own development. Japan went from making tin toys to Toyotas, from cheap radios to world-class electronics. By 1985, they’d completed their first miracle.
Then came the second act. The Plaza Accord of 1985 — five finance ministers in a New York hotel room decided to dismantle Japan’s export machine. Japan signed on too, thinking they could manage it.
They couldn’t. The yen shot up 50% against the U.S. dollar in two years. Japan faced a choice: Watch its economic miracle turn into a pumpkin, or get creative.
They got creative. Instead of converting their mountain of trade-surplus dollars to yen (which would have pushed the yen even higher), the Japanese started buying U.S. Treasury bonds. Mountains of them.
It was perfect. The U.S. got to keep borrowing. Japan got to keep exporting. Nobody had to mention that the whole thing was a shell game. As economists have long warned, this recycling machine couldn’t last forever. But that’s a problem for the next guy.
For the next 40 years — from 1985 to now — this recycling machine has been running nonstop. Japan made our Walkmans, Americans would buy them with dollars, and then — here’s the beautiful part — Japan would loan those dollars back to the U.S. by purchasing Treasury bonds. It’s like paying your bartender with an IOU, then having him loan you money to keep drinking. Genius! Later, China copied Japan's accumulation of US Treasury debt.
Three major shifts are killing this arrangement, and they’re all happening at once.
First, demographics. Japan’s aging population needs those savings for retirement, not for subsidizing American consumption. Turns out, elderly Japanese people prefer eating actual food to dining on Treasury bonds. The same demographic change is happening in China, but unlike Japan, China hasn't become rich yet.
Second, debt. At 235% of GDP, Japan’s government debt makes America’s 124.3% of GDP national debt look positively prudent, like comparing a shopaholic to someone who merely forgot to cancel their gym membership. As Japan’s bond rates rise, the math becomes more impossible than explaining cryptocurrency to your grandmother.
Third, politics. Prime Minister Ishiba’s government hangs by a thread, with 21% approval after a series of fundraising scandals and economic missteps. You can’t run a corner store with 21% approval, let alone a country.
Adding to the pressure, there’s declining demand for Japanese government bonds domestically. This forces Japan to raise interest rates, which in turn makes holding U.S. Treasurys even less attractive. When your own bonds can’t find buyers, it’s hard to justify buying someone else’s.
Enter the Scamsters - but who's scamming who?
Scam-master Masayoshi Son, the SoftBank billionaire who’s become President Donald Trump’s favorite Japanese dealmaker has floated a new idea to transform Japan’s passive Treasury holdings into active investments in American companies through a joint sovereign wealth fund. According to financial press reports, this would mean Japan converting US government bonds into equity stakes in U.S. technology, infrastructure and energy projects with both nations would sharing the profits and losses.
Americans currently stocking up on Trump Crypto Coin might even be able to buy shares, buying a seat at the table with the Big Boy Scammers.
Of course, converting $1 trillion in bonds to equity investments would be fraught with risks — currency fluctuations, market volatility and political backlash on both sides of the Pacific.
U.S. Treasury Secretary Scott Bessent would face a delicate task in making this transition without triggering a bond-market crisis — like defusing a bomb while riding a unicycle. If Japan simply dumped its $1.1 Trillion of Treasury bond holdings, interest rates would spike faster than blood pressure at a tax audit.
The immediate risks are clear:
- If Japan stops buying America’s bonds, U.S. interest rates could spike.
- Homeowners with adjustable-rate mortgages could see costs jump.
- New car loans and credit cards would get more expensive.
- The U.S. government’s interest payments would soar, potentially affecting everything from Social Security to defense spending.
But the opportunity is equally significant. A U.S.-Japan investment fund could:
- Channel foreign capital into productive assets rather than government debt.
- Create jobs through infrastructure and technology investment.
- Generate returns that benefit both nations’ citizens.
- Establish a model for unwinding other's with major holdings of US Treasuries such as the EU, South Korea China, Canada and Saudi Arabia.
This isn’t just about financial engineering — though let’s be honest, financial engineering is sexier than it sounds, like accounting’s dangerous cousin who rides a motorcycle. It’s about whether America can maintain access to foreign capital while reducing its debt dependence, kind of like keeping your rich friends while learning to pay for your own drinks.
Critics will call this government interference in free markets. But free markets in international finance have always been about as real as professional wrestling — entertaining, but heavily choreographed. Every major economy practices industrial policy; America just outsourced its policy to allies and called it “free trade.” Now the U.S. is bringing it home like a college kid with dirty laundry.
Japan’s quiet subsidy of American prosperity is ending. Congress dancing to billionaire donors don't dare to increase taxes to balance the US budget so the only path forward is a new bargain that transforms debt into equity, dependence into partnership.
For American investors and homeowners, the message is crystal clear: The era of cheap money is over. Lock in fixed-rate mortgages while you can. Prepare for higher interest rates. And watch for announcements of new investment vehicles that could reshape global finance.
The greatest risk isn’t change — it’s pretending the old system can continue. Japan’s bondholders are already voting with their wallets. The only question is whether Washington can engineer an economic soft landing for the U.S. or whether the country is headed for the kind of turbulence that has flight attendants reaching for their own oxygen masks.
Here’s what to watch as these transitions unfold:
- Japanese 10-year bond yields (if they spike, trouble ahead).
- Any announcement of a U.S.-Japan investment fund.
- The stability of Japan’s government. (If Ishiba’s government falls, markets could panic.)
- Adjustable-rates move up — might be time to lock in fixed rates.
For 40 years, Americans’ have been drinking champagne on Japan’s tab. Now it’s closing time and they want to be paid in something besides IOUs.
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