TOKYO — A trillion here, a trillion there, and soon the numbers stop feeling abstract. With apologies to 1960s U.S. Senator Everett Dirksen, Washington has entered an era where trillion-dollar figures are no longer rhetorical exaggerations but fiscal reality. In 2026, that reality increasingly places Asia on the hook.
This year marks a troubling milestone for the world’s largest economy: U.S. interest payments on federal debt have surpassed $1 trillion annually. The Committee for a Responsible Federal Budget calls it the “new norm” as America’s national debt edges toward $39 trillion, up from roughly $38.5 trillion at the end of 2025.
As the White House under Donald Trump ramps up debt issuance to finance widening deficits, Washington will once again look east. Asia remains home to America’s largest foreign creditors, led by Japan with nearly $1.2 trillion in U.S. Treasuries and China with about $689 billion.
The looming question is stark: why should Tokyo and Beijing increase exposure to a U.S. economy facing such fiscal strain?
Asia’s Treasury Dilemma
Historically, large U.S. Treasury holdings have been a byproduct of trade surpluses and dollar-based commerce. But tradition may no longer suffice. With U.S. debt projected to hit 100% of GDP, rising interest costs are increasingly crowding out productive spending.
Japan’s Prime Minister Sanae Takaichi and China’s leader Xi Jinping may find it politically and economically difficult to keep accumulating Treasuries at the same pace.
Speculation about Treasury holdings as leverage is not new. Morgan Stanley MUFG economist Takeshi Yamaguchi has openly questioned whether Japan might someday use its holdings as a bargaining chip. Former Japanese finance minister Katsunobu Kato once hinted that “everything that could be a bargaining chip should be on the table.” Similar threats surfaced as far back as 1997, when then-Prime Minister Ryutaro Hashimoto alluded to selling Treasuries amid tense U.S.–Japan trade talks.
So far, Takaichi has avoided antagonizing Trump. But Washington’s desire for a weaker dollar collides with her domestic strategy—often dubbed “Sanaenomics”—which depends on a weaker yen and the Bank of Japan’s ultra-low interest rates to revive wage growth. Trump’s currency ambitions could destabilize that delicate balance.
America’s Debt Spiral Fears
The numbers are alarming. According to the Congressional Budget Office, net interest payments rose from $345 billion in 2020 to $970 billion in 2025. Projections suggest interest costs could exceed $1.5 trillion by 2032 and approach $1.8 trillion by 2035.
Trump’s fiscal agenda has compounded the issue. The “One Big Beautiful Bill Act,” passed in 2025, made earlier tax cuts permanent without matching spending reductions. The result: ballooning deficits and surging debt service.
Attempts to rein in spending have produced limited results. The Department of Government Efficiency (DOGE)—led by Tesla billionaire Elon Musk—delivered little in meaningful savings. Meanwhile, Trump’s tariffs may have weighed more on GDP than they generated in revenue, with legal challenges potentially heading to the Supreme Court.
Nearly a year ago, hedge-fund titan Ray Dalio warned that the U.S. risked a “debt death spiral.” Comparing the economy to a critically ill patient, Dalio argued deficits must shrink from 7.5% of GDP to about 3% to avoid a bond-market “heart attack.”
Dollar Weakness and Global Repercussions
Currency markets are already signaling stress. While the dollar ended 2025 flat against the yen, it fell 13.5% against the euro, its sharpest annual decline since 2017.
Concerns about Federal Reserve independence are compounding volatility. Trump has repeatedly criticized the Fed and threatened Chair Jerome Powell. Goldman Sachs warns that leadership changes could skew U.S. rate expectations dovish in 2026.
At Deutsche Bank, strategist George Saravelos projects the dollar could weaken another 10% by the end of 2026, signaling the end of a long bull cycle. TD Securities analyst Jayati Bharadwaj notes that the U.S. is no longer insulated from global shocks—it is increasingly the source of them.
Xi’s Yuan Opportunity
For Xi Jinping, Washington’s turmoil presents an opening. Since 2013, Beijing has pushed to internationalize the yuan. Trump’s fiscal and institutional unpredictability may offer Xi his best chance yet.
Still, challenges remain. Cornell University economist Eswar Prasad argues that yuan dominance requires stronger rule of law, independent central banking, and durable capital-market reforms—areas where China still faces skepticism.
As Institute of International Finance chief economist Marcello Estevão notes, the dollar’s dominance rests on deep markets and trusted institutions. But in finance, perfection isn’t required—only a better alternative.
An Inflection Point?
With U.S. debt costs spiraling, Asia reassessing its Treasury exposure, and the yuan slowly gaining ground, 2026 may emerge as a turning point in the global currency order. Whether it becomes a crisis or a recalibration depends on Washington’s willingness to confront its fiscal reality—before Asia decides it has had enough.
