Yen Swings Could Rattle Treasuries and Stocks as Wall Street Focuses on Japanese Funds

The yen is emerging as a force that could jolt both the US Treasury market and equities. Japan is the largest foreign holder of US Treasuries, and enormous sums have also flowed into US financial markets through yen carry trades built on Japan’s low interest rates.

As of late June 2026, Japan held about $1.1167 trillion of US Treasuries, the most among foreign countries. The UK followed with about $939.9 billion and China with about $633.4 billion. That leaves Japan’s buying and selling in a position to materially influence Treasury demand and long-term US yields.

That backdrop also helps explain why US Treasury Secretary Scott Bessent has been highly sensitive to moves in the yen. Referring to the dollar-yen exchange rate on Sept. 9, Bessent said, “I have asymmetric information,” adding, “Now I am the house.” The comments were interpreted as suggesting the US Treasury is keeping open the possibility of policy coordination with Japan’s foreign-exchange authorities.

If the yen weakens excessively, Japanese authorities could move to defend the currency. To secure the dollars needed to buy yen, they could sell US Treasuries held in foreign-exchange reserves. That would send Treasury prices lower and yields higher. Japan in fact sold about $12.1 billion of US Treasuries in 1998 to support the yen, and the three-month Treasury yield jumped 11 basis points in a single day.

A rapid strengthening in the yen would also be a risk. Yen carry trades, in which investors borrow yen at low rates and invest in US stocks and bonds, could unwind quickly. As investors sell US assets and buy back yen, selling pressure could intensify across both equities and bonds.

Estimates of yen carry-trade funds vary widely depending on the methodology. Some analyses based on Bank for International Settlements data estimated the size of FX carry trades at about $250 billion just before the market shock in August 2024. Jefferies, using BIS data, put cross-border yen borrowing at about $2.34 trillion as of March 2026. Still, that figure also includes corporate finance and trade finance, making it difficult to treat the entire amount as yen carry-trade funding.

In August 2024, a stronger yen and fears of a yen carry-trade unwind rattled US stocks. The S&P 500 fell about 4.7% from Aug. 1 through Aug. 5. Concerns over a US recession and a correction in technology shares also played a role, but the episode showed how carry-trade unwinds can amplify market volatility.

Still, it is difficult to attribute higher long-term US yields to Japan alone. If a prolonged war with Iran, elevated oil prices, large US fiscal deficits and tariff costs push inflation higher, they could create structural upward pressure on Treasury yields. If the yen is an important external variable for US financial markets, the more fundamental risk to long-term yields may lie in US inflation and fiscal problems.