Trump's nightmare: New threat from Japan
Trump's nightmare: New threat from Japan
The "earthquake" that scares the US
Andreas Cervenka
Reporter and economic commentator
This is a commentay text. Analysis and positions are those of the writer.
Published 19.35
On the surface, US Treasury Secretary Scott Bessent has played tough in the face of growing criticism of the country.
But behind the scenes, nervousness seems to be high. The US is said to be ready to help Japan avoid a crash - to avoid being dragged down itself.
The drama surrounding the US shows no signs of abating.
The circus surrounding the Davos summit had not even had time to die down before Donald Trump this weekend made another attack on Canada by threatening 100 percent tariffs if the country enters into a trade agreement with China.
And the weekend's events, in which a 37-year-old man was shot dead in Minnesota, have hardly strengthened the world's confidence in the country's development.
In recent weeks, the view of the world's largest economy has changed.
After Donald Trump's plans to take over Greenland, many foreign investors are reviewing their holdings of US government securities.
It recently became known that Europe's largest pension fund, the Dutch ABP, sold a third of its US government bonds last year and the Swedish Alecta has also reduced its holdings, citing "increased risk and unpredictability in US politics".
Last week, the dollar fell against other currencies and the decline continued on both Monday and Tuesday, when the price of gold also continued to reach new records above $5,000 per ounce. Gold, which is seen as a classic way to protect assets in times of unrest, has risen sharply during Donald Trump's time as president, up 90 percent in the past year.
The price of silver is also soaring, up 55 percent so far this year alone.
During last week's meeting in Davos, friday, US Treasury Secretary Scott Bessent commented on reports that European investors may start selling government bonds and was visibly irritated by the topic of discussion.
He also attracted attention with a generally aggressive appearance towards Europe, where he, among other things, sawed German-Swiss food and declared that he would rather eat insects.
But behind the scenes, things seem to be much more nervous.
Last Friday, reports came that the US is prepared to help Japan support the purchase of the Japanese currency yen, something that is very unusual.
What does Japan have to do with the US?
What worries investors is the US's high and rapidly growing national debt, which is approaching 39,000 billion dollars or 120 percent of US GDP.
Growing debt mountains are a problem that the United States shares with many countries in the Western world, including Europe.
Japan is at the farthest end of the curve, with a national debt equivalent to almost 240 percent of GDP (Sweden is at around 35 percent).
The country is therefore seen as a crystal ball that can provide insight into what might happen to other debt-ridden countries.
For decades, Japan was characterized by low inflation, Forlow economic growth and interest rates around zero. At the same time, the government has run large deficits, which have been partly financed by the central bank printing more money. The Bank of Japan owns almost half of all government securities.
As long as interest rates were low, it worked, but now things have changed. Inflation has started to rise again in Japan, and with it interest rates.
Last week, the yield on Japanese 40-year bonds began to surge to record levels above 4 percent, while the Japanese currency yen fell in value.
This has created great nervousness in the market.
Concerns have also increased ahead of a parliamentary election to be held in Japan on February 8, where Prime Minister Sanae Takaichi is campaigning with promises to spend more and increase the budget deficit, despite previously having a plan to tighten and end up in balance.
One analyst tells Bloomberg that Japan's enormous debt mountain can be compared to the great San Andreas fault in California, where the slightest tremor increases concerns that a major earthquake is on the way.
If the yen falls, Japan will have to buy support to bring the rate up, and the fastest way is to sell its holdings of US government securities, which pushes up interest rates at the worst possible time, says Anthony Doyle, chief strategist at Pinnacle Investment Management, to Bloomberg.
Japan is the largest foreign owner of US debt with a total of 1,200 billion dollars.
On friday, the US Federal Reserve contacted currency traders in Tokyo, which was interpreted as a first step for the US to help support the purchase of the yen.
The decision to intervene in the currency market lies with Scott Bessent and during Davos he was in contact with Japan's finance minister after there were signs that the concern was spilling over into US government bonds.
It was also after this that Donald Trump reversed his plans for Greenland, although it is not proven that it contributed to his decision.
But in the past, the interest rate on the US national debt has been one of the few things that has been able to make Donald Trump change his mind.
Anyone who wants to keep track of where the US and the world are heading is advised to keep a close eye on this figure.
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