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Written by Chris Marcus for the Miles Franklin blog

While much of the attention regarding foreign nations questioning the strategy of continuing to buy U.S. debt has focused on China, there’s a growing case to be made that Japan, the second largest foreign holder of U.S. treasuries, is also contemplating a similar action.

Reports surfaced earlier this year that Japan has been reducing its portfolio of U.S. debt, and more recent news provides evidence that they may have incentive to continue doing more of the same.

Not pleased with President Donald Trump’s decision to impose a 25% steel tariff on foreign manufacturers (according to the Wall Street Journal), Japan is now considering retaliatory action.

Japan is looking into retaliating against the U.S. over steel tariffs, officials said, a break from the more conciliatory approach Tokyo initially adopted toward its closest ally.

The officials said Japan may tell the World Trade Organization that it believes it has the right to immediately impose tariffs on U.S. goods equivalent to the damage it is suffering from the steel tariffs—a step China has taken.

The move reflects Japan’s irritation about its steel being labeled a national-security threat by the Trump administration and could be intended to send a message ahead of two-way trade talks with Washington set to start in June.

While China has more publicly voiced its displeasure with U.S. political and economic sanctions, the Japanese are quietly offering evidence that they aren’t thrilled either. Which is rather significant, because the Japanese are the second largest foreign holder of U.S. treasuries.

Which means that they also hold significant leverage in their trade relationship with the United States. Remember that the U.S. government and treasury simply exist at this point based on their ability to finance spending with paper, with the Japanese representing one of the largest buyers. And while I’m not suggesting it is Japan’s first choice to dump treasuries and crash the market, thereby devaluing its own investment, these latest comments in the least signify that reducing it’s exposure to U.S. debt has become more than just discussion.

“We tried to persuade the U.S. by saying we are friends, and it has not worked. The EU is preparing retaliation. China is retaliating. I still hope discussions between Japan and the U.S. will have a fruitful result, but if not we may have to resort to WTO measures,” said a top Japanese official involved in international economic relations.

These comments demonstrate that the Japanese are not oblivious to what’s going on in the world. While they might not be as outspoken and vocal as many other nations around the globe, the evidence is there that they see what’s going on, and they’re not completely thrilled about it.

Which perhaps in and of itself would not be earth-shattering news. But when you consider this along with the actions China is taking, as well as how other nations are repatriating their gold and creating payment mechanisms that circumvent the dollar, there is a growing trend.

All of which is putting more pressure on the U.S. financing and dollar infrastructure at a time when the national debt is higher than ever, and interest expenses are set to explode. Which is exactly why so many foreign nations are turning to precious metals and trading U.S. paper for hard assets.

It’s a trend worth noticing and considering, as current political and market dynamics suggest that it’s likely to continue. And if you want to be on the same side of the trend as those who hold the leverage, as opposed to the side that’s heavily indebted, buying physical gold and silver remains one of the best ways of doing so and protecting your assets.

Chris Marcus