In July 2026 the United States did something it had not done in decades: it bailed out another country's currency. The currency was the Japanese yen, and the official explanation was friendship.
President Trump said Japan has a weakening yen, wanted a little help, and America is strong enough financially to give it. That is not the full story.
Japan is the largest foreign owner of United States debt. When its currency slides, your mortgage rate, your stock market and the buying power of your dollar all move with it.
That last part is the subject of a free live investor workshop our CEO, Jaspreet Singh, is hosting on September 29th: how investors can profit from a dollar that is losing value. It runs twice, at 10:30 a.m. and 8 p.m. Eastern, and because it is live the seats are limited, so save yours here.
And the Bank of Japan, the country's central bank, is expected to raise interest rates again.
Japan Is Underwater on Its Debt, and America Is Wading In
Go back to 1995, when both economies were considered healthy. Japan owed about ¥470 trillion against a ¥505 trillion economy, measured by GDP, the number that sizes up an entire economy.
That is a debt to GDP ratio, debt divided by the size of the economy, of around 93%. America was in even better shape at about 65%.
| 1995 | 2026 | |
|---|---|---|
| Japan economy (GDP) | ¥505 trillion | ¥560 trillion |
| Japan national debt | ¥470 trillion | ¥1,320 trillion |
| Japan debt to GDP | ~93% | ~235% |
| US economy (GDP) | $7.6 trillion | $32 trillion |
| US national debt | $4.9 trillion | $40 trillion |
| US debt to GDP | ~65% | ~125% |
Thirty-one years later, Japan's economy has barely grown while its debt has nearly tripled. Japan now carries far more debt than it has economy, and that is what underwater means.
America's economy grew a lot, but its national debt grew faster. At roughly 125%, the United States is underwater too, just not as deep.
Japan Cured Deflation With Negative Interest Rates and Caught Inflation Instead
Like most central banks, the Bank of Japan cut interest rates to get people borrowing, investing, buying houses and buying cars. It did not stop at zero.
Japan went to negative interest rates. Instead of borrowing $1,000 and paying back $1,100, a borrower paid back $900.
The only borrower really getting that deal was the Japanese government, which borrowed from its own central bank and did not mind losing money on the loan. It took the free money and pushed it into the economy.
None of this felt dangerous, because Japan was not worried about inflation. It was worried about deflation, which is when prices fall.
Falling prices sound wonderful, since the $100 in your pocket buys more than it did last year. But stock prices and home prices fall along with everything else, and so do wages.
Then, after years of negative rates, inflation arrived anyway, and people started to worry about what the yen was worth. The Bank of Japan began raising interest rates to protect it.
Japan Is America's Biggest Lender, and It Needs Its Yen at Home
Why would Washington care about a currency on the other side of the world? Because the United States government is about $40 trillion in debt, and it has to borrow that money from somewhere.
It borrows from three places:
- Regular people who buy government debt
- The Federal Reserve, America's central bank
- Foreign governments and foreign investors
The largest foreign lender is Japan. And in 2026 the government has struggled to find enough lenders as the national debt keeps exploding.
That has created chaos in the bond market, where the government goes to borrow. Put yourself in Tokyo's shoes: if you are worried your own currency might collapse, you keep your money at home instead of lending it to the United States.
That is what Washington wanted to prevent. Lose Japan and the government loses another lender, and the dollar only works as long as people have faith and trust in it.
So a country that spends trillions every year it does not have sent a huge sum of money to Japan to steady the yen. The administration's bet is that this indirect investment helps the American economy, American investments and American citizens.
It did not steady much. The yen is still unstable, so the Bank of Japan is again looking at raising rates.
The Japan Carry Trade Pumped Free Money Into Your Stocks
For years Wall Street ran the Japan carry trade, better known as the yen carry trade, and it was extremely profitable. Borrow huge sums of yen at essentially 0% interest, since Japan's rates were negative, then convert that yen into dollars.
Then buy American assets with those dollars: stocks, real estate, US Treasuries, which are US government debt. If the investment grows 10%, that 10% is yours, and you hand the Japanese bank back only the principal, the amount you borrowed.
Nobody can calculate the exact amount, but somewhere between billions and trillions of dollars entered the United States every year this way. It flowed into the stock market and into the Treasury market, and it lifted asset prices along the way.
You have probably felt that in your 401(k). The price of any asset comes down to supply and demand, and the carry trade added a whole new crowd of buyers.
Now the Carry Trade Is Running in Reverse
As Japan interest rates go up, borrowing yen is no longer free, and the carry trade is not as popular as it used to be. Fewer new buyers means less support under the prices sitting in your account.
If Japan Stops Buying Dollars, Your Groceries Get Pricier
The dollar is a fiat currency, which means it is not backed by a precious metal, only by a promise. So its value runs on supply and demand.
When the world wants dollars, each one buys more house, more car and more groceries. When there are too many dollars, or less trust in them, you need more of them for the same things, and that is inflation.
Between 2020 and today the United States printed so many dollars that supply outran demand, and prices climbed.
Now the biggest holders of those dollars are turning. China used to be the largest foreign lender to the United States, and today it is a seller of US debt, not a buyer.
Japan holds that title now. If Japan becomes a net seller too, selling more US debt than it buys to defend its own currency, global markets get flooded with dollars and each one buys less.
That is the problem Jaspreet's September 29th workshop is built around: how investors can position for a dollar that is losing value instead of just paying for it. It is free and it is live, and you can register here.
Japan Lends Less, and Your Mortgage Rate Goes Up
Your mortgage rate runs through the Treasury rate, the interest the US government pays the people who lend it money. Like everything else here, it moves on supply and demand.
When everyone wants to lend to Washington, the government can offer 3% instead of 5% and still find takers. 2026 was the opposite.
Not enough lenders showed up, so instead of paying 4%, the government had to offer 5%, then 5.2%. Japan pulling back is one reason for that, not the only one.
The result was the highest interest rates in the bond market in decades, and that makes the national debt more expensive to carry. It also makes your mortgage more expensive.
Picture yourself as JPMorgan Chase, Bank of America or Wells Fargo. You could give a homebuyer a mortgage at 5%, but that buyer could lose a job or forget a payment.
The US government will not miss, because it can print the money through the Federal Reserve. If the government pays 5% for money and never misses, no bank will charge a riskier borrower that same 5%.
So mortgage rates climbed in 2026, and not because the Federal Reserve raised rates or because realtors changed anything. Everything priced off Treasury rates followed:
- Mortgage rates
- Car loan rates
- Credit card rates
- Business loan rates
Higher Rates Hit Investors Who Do Not Owe a Dime
America runs on credit. People spend based on how much they can borrow, not how much cash is in their wallet, and GDP is really just a measure of all that spending.
When borrowing costs more, people buy fewer houses and cars, and businesses invest less. That slows the economy, and a slower economy costs jobs.
So even with no debt to your name, higher Treasury yields reach you through the job market and through wage growth. Not all of that traces back to Japan and the falling yen, but some of it does.
The money Washington sent in July did not fully steady the yen. The Bank of Japan is expected to raise interest rates again, and when it does, Tokyo will not be the first place you feel it.
