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"The Buck Stops Here,"

Dylan Jovine, CEO & Founder
Behind the Markets

Thursday, June 18, 2026

The math shifted when Tokyo started selling to defend the yen.

Japan sold $75.6 billion in foreign securities in May. The Finance Ministry confirmed the figure on June 4. It is the largest single-month drop on record. Most of those securities were almost certainly US Treasuries.

Japan holds roughly $1.2 trillion in US Treasuries. That is about 13% of all foreign-held US debt. It is the single largest foreign holder. When the largest foreign holder sells at this pace, the bond market absorbs the impact.

The 10-year Treasury yielded 4.49% on June 12. The 30-year yielded 4.97%. Yields stay high. The reason is not a mystery. It is a plumbing problem.

Three forces pull in the same direction. Japan is selling US Treasuries from both its government reserves and its private sector. The US needs to borrow over $2 trillion this year. That demand gap is why yields stay high.

Iran's new Supreme Leader made an announcement that could trigger the largest financial crisis since 2008.

"Iran will keep the Strait of Hormuz shut as leverage against the United States."

40% of the world's oil passes through the Strait of Hormuz. It's been effectively closed since the Iran war started.

Oil just crossed $100 per barrel.

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1973 Oil Crisis: Gold surged from $35 to $200 (571% gain)

1979 Oil Crisis: Gold exploded from $200 to $850 (425% gain)

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Japan's Finance Ministry confirmed a record ¥11.73 trillion in currency intervention through May 28. That is roughly $73.4 billion. It bought yen and sold foreign assets to support the currency.

Here is the detail that matters. Japan's foreign currency cash deposits held flat at $162 billion. The cash did not move. The bonds moved. Japan holds $1.2 trillion in Treasuries. When it needs $73 billion fast, it sells what fills the vault.

Shusuke Yamada at Bank of America in Tokyo put a number on it. Bonds, not cash, funded the intervention. That pushed roughly $70 billion in new supply into the Treasury market.

Observation: Japan's foreign securities fell $75.6 billion in one month while cash reserves stayed flat.
Interpretation: Bonds funded the intervention, not cash. US Treasuries absorbed nearly all of the selling pressure.

The government’s sale is the only channel. Japanese private capital is leaving US bonds on its own.

Japanese investors sold $29.6 billion in US government bonds in Q1 2026. That is the largest quarterly drop in nearly four years. The reason is plain math. Japanese government bonds now pay multi-decade highs. The 20-year yields 3.555%. The 10-year yields 2.65%. A Japanese pension fund can earn a real return at home without taking on currency risk.

The Bank of Japan built these conditions on purpose. It halved monthly bond purchases from ¥5.7 trillion to ¥2.9 trillion over two years. That removed the ceiling on domestic yields. The market already expects the next step. Bloomberg surveyed 51 economists. 49 expect the BOJ to raise its rate to 1% on June 16, the highest since 1995. Higher rates at home pull capital home. The incentive has already flipped.

Observation: Japanese investors sold $29.6 billion in US government bonds in Q1 2026.
Interpretation: BOJ normalization made Japanese bonds competitive for the first time in years. Private capital now has a reason to come home.

Now look at who needs to absorb all this supply.

The US budget deficit hit $1.2 trillion through the first eight months of fiscal year 2026. The Treasury projects full-year borrowing above $2 trillion. Interest payments alone run $88 billion a month.

The borrowing does not slow down. But the single largest foreign buyer is pulling back from both channels at once. Government reserves and private portfolios shrink together.

TD Bank's research team projects Japan's tapering could push 10-year yields 20 to 50 basis points higher. A basis point is one hundredth of a percent. That pressure lands on yields already near 4.5%. It arrives not from a crisis, but from a slow mechanical withdrawal. Picture a reservoir losing two outlets while the river feeding it rises. The water level has to go somewhere.

Observation: US borrowing tops $2 trillion this year as Japan cuts holdings from both channels.
Interpretation: Treasury supply rises while Japanese demand falls. That creates upward pressure on yields regardless of what the Fed does next.

The BOJ meets June 15–16. A hike to 1% narrows the return gap between Japanese and US bonds. That gives private capital less reason to stay in Treasuries. The rate decision is already priced in. The second-order effect is not. Every hike makes the pull on capital stronger for the quarters that follow.

The bigger force is the BOJ's purchase taper. Monthly bond buying drops to ¥2 trillion by early 2027. That schedule is already set. Each quarter, domestic Japanese yields have more room to rise. Each quarter, the pull grows.

The US side does not offset any of this. Borrowing needs grow. Interest costs compound. The Treasury keeps issuing bonds at scale. Three forces all push in the same direction. The signal worth tracking is not a single date. It is whether anyone steps in to fill the gap.

Japan sells US Treasuries from two directions at once. US borrowing accelerates into the gap. That pressure is structural, not temporary.

Until next time,
The Navigator