Bitcoin Expert Explains the Most Important Risk in Trump’s Tariff Gambit

Japan is the largest holder of US debt. Jeff Park explains why that might not be the country to cross

By: Zack Guzman

April 9, 2025

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When most investors think about Trump’s renewed trade war tactics, they look to China. But according to Jeff Park, Head of Alpha Strategies at Bitwise, the real danger may lie in the U.S. misplaying its hand with a very different player.

“It made sense to me at some level that he might go after Canada and Mexico ... but Japan’s a little different,” Park explained. “The security guarantee that was shared with Japan is ultimately at the core of how Japan has therefore then basically invested in all our long term treasuries.”

Notably, Japan actually holds more U.S. debt than China. According to data from the U.S. Treasury, Japan holds more than $1 trillion in U.S. Treasuries, compared to the less than $800 billion that China holds. For the time being, Japanese officials have not signaled wanting to use those holdings as bargaining chips in regards to tariffs that President Trump has threatened over Japan. The country also quickly expressed a desire to come forward to negotiate away the more than 20% tariffs Trump had announced on Japan.

"Japan is a very important military ally. They're [a] very important economic ally, and the U.S. has a lot of history with them," Bessent said this week. "So I would expect that Japan is going to get priority just because they came forward very quickly."

But the signal sent by Trump’s escalation — and his labeling Japan as a currency manipulator alongside China — may have already triggered a geopolitical realignment.

“China did come out and announce with Korea and Japan that they are now going to explore a multilateral trade agreement between the three ... these are not totally natural allies that would all come together,” Park said. “The only reason it happened was because there was just not enough confidence being signaled in the U.S. that the Alliance would hold the way people had anticipated.”

Even if the U.S. offers Japan an olive branch now, the damage may be irreversible. “The reality is China already probably got some kind of deal out of the ability to negotiate for having to make that announcement,” Park warned. “Korea and Japan are now, at least at some level, going to feel indebted to China in a way that the U.S. would never have wanted that to be the case.”

But considering how large Japan's holding of U.S. debt is now, things could rapidly change if they change their stance on not using that as a negotiating tactic. As Park explains, foreign debt matters as much, if not more than what the Fed chooses to do at this point. Most of that debt is denominated in longer-term bonds like 30-Year Treasuries.

"The market knows at this point, deep down, that the Fed can really only control the short-end of the curve, and that the long end of the curve has always been determined by, our foreign and domestic creditors and there's actually very little the fed can do about that," he said. "I think Trump too kind of knows this, which is why you also see him flip-flop sometimes where he actually does praise [Fed Chair] Powell from time to time and says, you know, he can do whatever he wants, he's doing the right thing, and then he'll go on his rant and say, 'Actually, you know, you should cut rates.'"

One thing is for certain: the variables outside of Trump's control were starting to shift by Wednesday afternoon. While it looked like his opening salvo was working as intended with the yield on the 10-year bond falling earlier this week, things broke to the upside by Tuesday evening. At one point the yield surged to top 4.5%. By Wednesday afternoon, Trump blinked and instituted a 90-day pause on reciprocal tariffs. Goldman Sachs immediately withdrew their base case call for a recession, and Bitcoin surged more than 7%. By then, yields had fallen back below 4.34%.

Park, who famously predicted Trump's tariff tantrum to attempt to bring down interest rates back in February, said he's more confident in Bitcoin rising than ever.

"The truth is there's two sides to bitcoin story. There is a way Bitcoin benefits because the money printer just goes on steroids. And there's continual debasement and inflation that is being created in which Bitcoin is a worthwhile asset that you need as a store of value," he said. "But there is this other version, which is kind of like the probability of this version of the world has increased a little bit, which is that there are going to be permanent tariffs, there is going to be protectionism ... and that's actually maybe the most like violent path for Bitcoin, because that's a total loss of confidence in the way that the world order has ever existed. So both both scenarios are ultimately very good for Bitcoin."

Coinage members can watch our full interview with Bitwise's Jeff Park above. To support our community-owned outlet, own it with us, and unlock other exclusive benefits, mint one of our Membership Passes today or Stake with us today! Chat with Coinage in our Discord.

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