^{Source: Bloomberg}

Japan to U.S.: We’re Not Just Trading Partners—We’re Strategic Investors and Military Allies

As U.S.–Japan tariff tensions intensify, Tokyo is entering negotiations with what it sees as a strong hand—and a clear message: Japan is not just another trade partner. It’s America’s top foreign investor, a key military ally, and the largest holder of U.S. Treasury bonds.

That’s the stance of Takeshi Niinami, senior economic advisor to Japan’s Prime Minister and CEO of beverage giant Suntory Holdings, who spoke to CNBC’s Squawk Box Asia ahead of a critical visit to Washington by Japan’s top negotiator Ryosei Akazawa. Akazawa is scheduled to meet with U.S. Treasury Secretary Scott Bessent and U.S. Trade Representative Jamieson Greer over the next three days.

“We have many cards to play,” Niinami said. “Japan is the largest investor in the U.S. and holds over $1.1 trillion in U.S. Treasurys. That gives us leverage.”

Japan Holds the Purse Strings: $1.1 Trillion in U.S. Debt

Japan’s role as a massive holder of U.S. debt puts it in a unique negotiating position. As of Q1 2025, Japan owns approximately $1.1 trillion in U.S. Treasury securities, making it the largest foreign creditor, just ahead of China, which holds around $860 billion.

This became especially relevant after a sharp sell-off in the U.S. bond market last week sent 10-year Treasury yields surging past 4.5%—a level not seen since 2007. Rising yields typically signal falling bond prices, which can raise borrowing costs for American consumers and the government alike.

“President Trump is watching the bond market closely,” Niinami noted. “It’s a pressure point. And Japan’s role as a stabilizing investor is part of the broader discussion.”

White House economic advisor Kevin Hassett confirmed that the recent bond market jitters contributed to Trump’s temporary reversal of the 24% reciprocal tariffs, now reduced to a baseline of 10% and suspended for 90 days beginning April 9.

Japan’s Military Spending: A Strategic Bargaining Chip

Beyond financial influence, Japan is expected to leverage its growing defense relationship with the U.S.. Under Prime Minister Fumio Kishida’s latest security roadmap, Japan plans to raise its defense spending to 2% of GDP by 2027—a historic pivot for a country long constrained by its pacifist constitution.

This increase means billions of dollars in new military purchases, much of which will come from U.S. contractors. Japan already operates a wide array of U.S.-made defense equipment, including F-35 fighter jets, Black Hawk helicopters, and Patriot missile systems.

“We should talk about normalizing the U.S.–Japan relationship—both economically and militarily,” Niinami said. “Japan is not just a trade partner. We are your closest ally in Asia.”

Investment Outlook: Japan Still Sees U.S. as a Priority, Despite Tensions

Despite the turbulent tariff environment, Niinami emphasized that Japanese companies remain bullish on U.S. investment due to the country’s high productivity and innovation ecosystem.

According to the U.S. Department of Commerce, Japanese foreign direct investment (FDI) in the U.S. totaled over $721 billion in 2023, supporting more than 850,000 American jobs. Major sectors include automotive, chemicals, finance, and now increasingly, green energy and AI research.

“We don’t like the current U.S. trade stance, but the U.S. remains one of the most productive economies in the world,” Niinami said. “We want to keep investing.”

What’s at Stake in the Negotiations?

With Akazawa heading to Washington, Japan is expected to push for:

• A full rollback of the 24% reciprocal tariffs, not just a suspension.
• Stronger investment protections for Japanese firms operating in the U.S.
• Assurances against retaliatory tariff hikes tied to currency fluctuations or bond holdings.
• Deeper military-industrial cooperation, particularly in joint R&D on cybersecurity, missile defense, and aerospace.

In return, Washington may seek more open Japanese markets for U.S. agricultural exports and clearer commitments to security cooperation in the face of rising regional tensions with China and North Korea.

The Bottom Line

As the world’s third-largest economy and America’s largest financial backer, Japan is entering these negotiations with more than goodwill—it’s bringing data, dollars, and defense contracts to the table. Whether that will be enough to shift U.S. policy remains to be seen, but one thing is clear: Tokyo isn’t coming to Washington empty-handed.

‍