The Yen, US Treasury & the Financial Crisis of Empire
By Dr. Jack Rasmus
August 30, 2026
What do the collapse of the Japanese currency and carry trade—and the interventions by US Treasury Secretary Bessent in the currency and bond markets in recent weeks—have to do with the emerging financial crisis of the American Empire?
In August the US Treasury Secretary Bessent intervened in global currency markets to buy Yen to keep it from falling. Moreover it did so by buying Yen with Euros instead of US dollars. Bessent quickly followed that currency intervention with an accelerated buying back of US Treasury bonds, doubling buyback from $4 billion to now $8 billion a week.
What do these two seemingly separate actions by Bessent and the US Treasury have to do with today’s emerging financial crisis of the American Empire?
The Yen, the Dollar and US Treasuries
The Yen had been declining in relation to the US dollar. That meant Japan import prices, and in turn general inflation, had begun to rise in Japan. With inflation the price of Japan government bonds had begun to fall. Since the price and yield (i.e. interest rate) on bonds are always inversely relation, the interest rate on Japan government bonds began to rise in turn. From a level of virtually zero for years, the 10 year Japan government bond rose to nearly 3%.
Now that the yield on Japan bonds began to rise, Japan investors began investing in Japan bonds. When for years Japan bonds provided no yield, investors bought US Treasury bonds. A lot of them. More than $1 trillion.
But with Japan bond rates up and investors starting to buy Japan government bonds, money capital now threatened to turn from buying US Treasury bonds—yielding now around 4% and thus roughly the same as Japan’s bonds—to buying Japan bonds instead. In other words, demand for US Treasuries threatened to decline as investors turned from US to Japan government bond purchases.
Why is this important?
Because Japan had become by 2021 the largest purchaser of US Treasury securities among foreign holders, eclipsing China. Launched by Trump in 2018, the US trade war, sanctions, tariffs, etc. against China led to China in 2021 to start sharply reducing its holdings of Treasuries. Once holding $1.26 trillion in 2020, by 2026 China has reduced its holdings by half to $633 billion, allowing its Treasuries to ‘roll off’ after they matured and not purchasing new in any quantity. Japan had replaced China as the single largest country holding US Treasury securities.
Japan kept its holdings of US securities at more than $1.1 trillion throughout the period. Should it begin to buy fewer Treasuries—or worse start selling off its Treasuries—that would blow a second hole in US Treasury sales by foreign investors joining China.
Foreign investors (governments, central banks, private banks, corporations, etc.) hold about a third of all Treasuries outstanding today. They held approximately $9.2 trillion or 32% of all Treasuries outstanding at year end 2025, up from $6.8 trillion at start of 2020. Purchasings of US securities are critical for the US economy. New Treasury sales are the most important source for financing (paying for) the US annual budget deficit—and foreign purchasers constitute a significant one third.
Since 2020 the US budget deficit has ballooned, driven mostly by even faster acceleration of defense spending while Congress has massively cut tax revenues—i.e. the other potential source of budget financing which has been declining.
Pentagon spending has risen from $914 billion in 2021 to $1.15 trillion in 2025. US wars by year end 2026 will raise that to $1.4 trillion. Trump has asked for another $500 billion for defense in 2027. And that’s only Pentagon spending. Total US defense/war spending was $2.2 trillion in fiscal year 2025, when other defense related spending for veterans benefits, CIA, military aid, nuclear weapons development and other categories are included.
Given that tax revenues were cut $5 trillion by Trump in 2025 and thus a lid put on tax revenues as a source of funding the accelerating US defense spending and US budget deficit, sales of Treasury securities are increasingly important to fund the rising costs of Empire and exploding US budget deficits.
The US has continued to run massive budget deficits averaging more than $2 trillion a year since 2020. In past decades before 2000, the US used to cover its deficits with economic growth and tax revenues. But growth has slowed sharply since 2020, on average barely 2% per year and tax cuts for corporations and investors have accelerated. So Sales of US Treasuries have been key to ‘financing’ the annual $2 trillion plus US budget deficit.
Should foreign buyers of Treasuries continue to buy fewer Treasuries, like China has been doing, or worse, start selling off their Treasuries—how will the US finance its annual $2 trillion and rising budget deficit?
The US will have to either cut spending, raise taxes, or sell more Treasuries to domestic US buyers. But to sell more domestically, it will have to entice US domestic buyers to do so. How? By increasing the interest rate on the Treasuries it will pay them if they buy more.
Which brings us back to the recent events regarding Japan, its Yen, and its increasingly competitive Japan government bond rates that offer interest rates to buyers nearly equivalent to US Treasury bond rates.
Japan is about to sharply reduce its purchases of US Treasuries. That means less global demand for US Treasuries. At the same time, Japan has started selling off some of its $1.1 trillion hoard of Treasuries. That increases the supply of Treasuries globally. Lower demand and higher supply both mean falling prices for US Treasuries and, in turn, rising long term US bond interest rates.
Why is Japan selling its US Treasuries? In order to intervene to prop up the Yen, Japan’s central bank since July 2026 has begun selling off part of its $1.1 trillion stock of US securities. In fact, since July 2026 Japan’s central bank has dumped(sold off) more than $90 billion of Treasuries. It’s done so in order to raise cash with which to buy its own Yen in global markets to keep the Yen from falling.
In short, the falling Yen and rising Japan bond rates is threatening to sharply reduce the sale of US Treasuries and is throwing excess supply of US Treasury securities onto the market—both actions destabilizing the $31 trillion US Treasury market.
Bessent’s Yen Intervention with Euros
To assist Japan—and discourage it from selling even more US Treasuries—US Treasury Secretary Bessent last month intervened in global currency markets and started buying Yen to assist Japan trying to prop up the value (price) of its Yen. But that’s just the appearance. The real Bessent objective is to assist Japan to prevent it from selling off even more US Treasuries.
In an interesting twist, Bessent didn’t enter the global currency market to buy Yen with dollars. He used the US Treasury’s stock of Euros currency to buy Yen. That may have temporarily helped Japan, but it undermined the value of the Euro and European economies. That did not make the Europeans too happy.
On August 30, 2026 Bessent bragged the US action had stabilized the Yen. But evidence suggests otherwise. The Yen is likely to continue to fall below the benchmark Yen-Dollar exchange of 160 to the $1. When it does, Japan will likely dump (sell) more of its US Treasury holdings in order to buy more of its currency to prop it up. That means Japan, like China, will reduce its holdings of US securities well below the $90 billion it already expended since July. If it’s selling Treasuries it’s certainly not going to buy more. So both Japan’s demand and supply of Treasuries will push up US long term Treasury bond interest rates. US long bond rates are already at 5.3%! They’ll likely go higher now.
That will pull up US mortgage rates. So US consumers can forget about US housing affordability before the US November elections. It’ll get worse, not better. It’s already happening.
To sum up: the Japan Yen instability—and the joint interventions by the bank of Japan and the US Treasury to stabilize it—will likely lead to Japan, like China, selling off existing stock of US Treasuries and buying fewer of the same.
If both China and Japan are buying fewer and dumping more, who will pick up the slack in Treasury security sales—the key source for financing the US budget deficit, now at $2 trillion and projected to rise even more?
Since 2020 it has been the Europeans who have offset China’s sell off of Treasuries to enable the continued financing of the US deficit gap. Surprised by that? It’s true.
The question, however, is whether the Europeans will now buy even more Treasuries to offset the China, and soon Japan, decline in Treasuries?
Here’s what the Europeans did from 2020 through 2025:
The UK increased its holdings of Treasuries from $412 billion in 2020 to $865 billion in 2025. Belgium (the location of the EU clearing house bank) increased from $135 billion to $466 billion. Luxembourg from $197 to $431 billion. France from $49 billion to $376 billion. In other words, the Europeans more than offset the loss of China purchases of US Treasury securities. They offset China and bought more to enable the US to finance its chronic $2 trillion deficit since 2020.
Perhaps the US paid for most of the cost of the Ukraine war through 2024 with the understanding the Europeans would in turn buy more US Treasuries?
The question is will Europe continue? The US Trump administration relationship with Europe is not the best and is getting worse. The US has pulled back (financially) from support of the Ukraine war, turning over the cost of financing it to the Europeans. The latter in turn have had to raise $90 billion in Euro bonds to fund Ukraine, with talk of another $70 billion coming. If they have to raise $160 billion for their ‘Project Ukraine’ war, will they also continue buying Treasuries at the pace they had 2020-2025? Can they even do so? And if Trump intensifies the dispute with them over Greenland, will they want to?
In short, for both economic and political reasons it is unlikely the Europeans will continue to fill the gap in declining Treasury purchases by China and now potentially by Japan as the latter continues to sell off its Treasuries in order to support its currency?
Which brings us to the second recent US Treasury market event: Bessent’s injecting of another $4 billion a week into the US economy by doubling the rate of Treasury buybacks of US bonds already held by investors.
Bessent’s $8 Billion Weekly Buybacks
What does Bessent’s buyback scheme mean for the US deficit, rising US interest rates and the emerging financial crisis of Empire as well?
Bessent bought Japanese Yen with Euros because he was obviously saving his US dollars to buy back US bonds held by US investors.
Buying back US bonds results in dollars injected into the hands of investors who previously held the Treasuries. Less supply of bonds in the market means a higher price and thus in turn a lower yield or interest rate on long term Treasury bonds.
But the effect of Bessent’s action will prove negligible. $4 billion more a week, even over ten weeks ($40 billion), won’t budge the roughly $31 trillion US Treasury market. He surely knows that. So why did he do it?
Here’s where the current US Artificial Intelligence investment bubble enters the picture. The AI boom is devouring available money capital in the US. The big 9 tech company, so-called ‘hyperscalers’, are gobbling up investment capital borrowing hundreds of billions of dollars to fund their current massive AI investment. In 2025 the big 9 tech corps spent an estimated $500 billion on AI investment (in data centers, apps, chips, etc). This year 2026 the estimate is $1 to $1.5 trillion. Next year, another $1 trillion. And that’s only the big 9. The rest of corporate America is running pell mell off the cliff into AI investing as well. (Many will go bust when the AI bubble crashes in the next 12-18 months, I predict, but that’s another story).
That massive AI investment is being financed out of various sources. The hyperscalers are committing their former massive hoard of cash. They are in addition issuing more equity (stock) to raise cash. They are signing long term huge leasing deals and commitments. And they are raising debt—i.e. borrowing. The debt component of the total spending is estimated at over $200 billion this year alone. In other words, they are sucking up most of the available investment capital to finance their AI plans.
In the process they are crowding out US investment in general, driving up interest rates. They are also potentially crowding out US investors’ purchases of US Treasury securities—at a time of foreign holders of Treasuries reducing theirs as well!
So Bessent is injecting $40-$80 billion or more in 2026 in extra liquidity into the US economy—in part to assist the massive AI lending by banks but in part as well to provide sufficient dollars for US investors to purchase US Treasuries by investors.
The connection between the Japan Yen intervention and the US bond buybacks is that they are both actions intended in the end to enable the continued purchasing of US Treasury securities—as the US Empire’s defense costs continue to accelerate and the US needs to sell even more Treasury securities in order to finance its accelerating defense spending and budget deficits.
SUMMARY
The takeaways from all this are:
- Japan’s Yen will continue to weaken. Both its central bank and US interventions will not succeed even intermediate term. The Yen will continue to fall below 160 and Japan will have to continue to sell Treasuries in order to prop up its currency
- The combination of China, Japan (and likely Europe) slowing of Treasury purchases will mean demand for Treasuries will slow, prices decline and therefore long term US bond rates rise
- Federal Reserve chair Warsh will follow the market-driven long term bond rate rise by raising Fed short term rates eventually as well
- The US economy, already slowing (except for AI investment) will slow even more as rates increase. US job creation, already flat, will decline further in turn
- Big Tech will chase the AI investment bubble into 2027, absorbing money capital, crowding out other investment and driving up US interest rates further until the market side of the bubble busts in late 2027-28
- Aggregate US Treasury sales by foreign buyers will slow, as US budget deficits rise even further as US defense spending continues to accelerate (Pentagon $1.5 trillion; total defense spending all sources $2.5 trillIon).
- A crisis in the Empire’s financing of rising deficits and debt from Treasury sales will force the Empire to choose one or more of the following: to reduce war spending, raise taxes, or (most likely) intensify austerity by cutting social programs even further.[1]
Dr. Jack Rasmus
August 30 2026
[1] All the data references are from the author’ forthcoming book, ‘Twilight of American Imperialism’, Clarity Press, September 2026, which are in turn all from US Federal Reserve and Commerce Department data bases.
Dr. Jack Rasmus @drjackrasmus
Jack Rasmus 