States of Indebtedness
Global Bond Markets, Public Debt, and the Crisis of Reproduction between the United States and Japan
March 16, 2026
The recent turbulence in global bond markets has fuelled anxiety over spiraling public debt and its perceived limits. Much of this attention has been trained on rising yields in US Treasuries, the world’s largest bond market. Online “doomers,” many heavily invested in crypto, and long-standing deficit hawks alike have cited government largesse and “entitlements” as the primary culprits. This pattern is not isolated: other global bond markets have experienced steepening yield curves that threaten the standard investment model—the 60/40 stock-bond portfolio split. In the United States, annual costs of servicing the national debt, which now outpace military spending, have become a political flashpoint. Donald Trump’s ongoing tariff threats, which reignited inflation fears and sent global supply chains into shock in April of last year, along with his ill-fated imperialist claim on Greenland, have compounded these factors. In popular discourse, the US dollar’s continual slide is likewise cited as proof of a “sell America” trade and an exit from US assets. While panic over state solvency is overblown, signs of strain are real, as evidenced by Moody’s recent downgrade of US credit. Japan, another state facing a possible downgrade, serves as a critical case study in sovereign debt dynamics, demonstrating that very high public debt levels do not automatically precipitate a crisis. What much of this discourse misses is the increased role of state intervention in financial markets vis-à-vis the credit system to provide liquidity for private accumulation. As Doug Henwood aptly put it, this fiscal and monetary strategy amounts to “borrow[ing] from rich people rather than tax[ing] them.”1Doug Henwood, “A Bill for Trump’s Madness Will Come Due,” Jacobin, March 29, 2025, jacobin.com/2025/05/us-credit-rating-trump-moodys.
Bonds have long been a tool for corporations and states to raise funds, but today government securities function more broadly as a global gauge, registering investors’ shifting appetite for security and risk as they make speculative bets on changing interest rates. From a Marxian perspective, once debt instruments and titles to them become tradeable assets, they assume the form of “purely fictitious capital”—that is, claims on future revenue that circulate without any direct connection to commodity production.2In the Grundrisse and Contribution to the Critique of Political Economy, as well as part 1 of volume 1 of Capital Marx elaborates money’s various functions. His scattered notes on banking and credit are found in volume 3 of Capital, which was compiled by Engels. In chapter 25 of that work, Marx introduces the concept of fictitious capital. Yet, the issuing of this public debt retains an indirect link to labor by influencing the cost of borrowing for business and consumers. In this way, the capitalist state assumes a relatively autonomous role in securing the long-term viability of capital by facilitating a market for public debt that provides liquidity for investors. Historically, the US public debt has grown in proportion to its trade deficits as the latter is a byproduct of maintaining dollar dominance. In recent years though, private investors’ holdings of US government securities have eclipsed the reserves held by central banks.3Department of the Treasury, Foreign Portfolio Holdings of U.S. Securities (Washington DC: Department of the Treasury, 2025), available at ticdata.treasury.gov/resource-center/data-chart-center/tic/Documents/shl2024r.pdf. At the same time, interest payments on bonds redistribute wealth upward, transferring public resources into private hands. From a global perspective, bond markets mediate the distribution of surplus value: Japan is an important case study as its vast holdings of US Treasury bonds (USTs) reflect both its historic recycling of trade surpluses into purchasing US debt, as well as private investors’ savvy investment strategies. Taken together, foreign ownership of US debt supports the US permissive credit environment, which in turn creates more financial assets that can be bought and traded.
Recent anxieties over global bond markets and public debt are better understood not as signs of imminent state insolvency but as symptoms of a crisis-prone capitalist system increasingly reliant on state-facilitated borrowing that enriches investors while deepening inequality. Using a Marxist framework, we critique both mainstream economics’ fiscal panic narratives and Modern Monetary Theory’s (MMT) closed economy model for failing to account for how the monetization of public debt fuels speculative finance, redistributes wealth upward, and undermines social reproduction, as illustrated by the case of Japan where decades of aggressive monetary policy have failed to produce a more “stable” capitalism.
The interconnectedness that undergirds contemporary global financial markets has roots in the US decision to suspend the convertibility of the dollar into gold in the early 1970s, but the growth of the Treasury market did not take off until a decade later. The 1985 Plaza Accord was a coordinated intervention to depreciate the US dollar, primarily against the Japanese yen and German mark, with the aim of addressing the massive US trade deficit. Plaza’s immediate effect was to make US exports more competitive, but it did so by forcing significant economic adjustments onto its allies. In particular, Japan experienced a sharp yen appreciation that hammered its export industries, prompting the Bank of Japan (BoJ) to enact radically low interest rates that in turn fueled a massive asset bubble. This bubble exploded with stock and property market crashes in 1991, leaving banks saddled with huge amounts of bad debt and kicking off what are now known as the lost decades.4See Etsuro Shioji, “The Bubble Burst And Stagnation of Japan,” in The Routledge Handbook of Major Events in Economic History, ed. Randall Parker and Robert Whaples (London: Routledge, 2013). While the Plaza Accord is now viewed as a key moment in which the United States gained a respite from its post-1970 malaise, it achieved this through asymmetrical sacrifice imposed on key economic rivals that were also two of its closest geopolitical allies. What’s more, the solution didn’t last. The United States soon saw asset crises of its own—a dot com bubble crash in 2000 and the 2008 subprime fiasco—while continuing to hollow out productive sectors like manufacturing. In the aftermath of the Great Financial Crisis, it became mired in huge structural deficits, forcing austerity on working-class households while increasing public borrowing (the majority of which came from private investors and commercial banks who bought short- and long-term securities).
The expansion of global trade in recent decades, along with the development of private credit networks and interventionist-minded central banks, has created a fragile and highly intricate financial system. Ironically, the increasing interdependency of this system and its international reach have helped revive economic nationalism. Fears of soaring public debt have also breathed life into neoliberal prescriptions for curtailing government spending. Recent turmoil in Japan’s bond market—particularly the sharp rise in yields on its long-term Japanese Government Bonds (JGBs) and tepid demand at bond auctions over the last year—has only deepened anxieties that this once-stable cornerstone of global finance is now in trouble. The fear that contagion could spread throughout the financial system, causing a global panic, animates both the investor class and segments of the financial press who warn that rising bond yields signal fiscal stress. On the other side of this debate, heterodox economists grouped under the banner of MMT reject such alarmism by emphasizing that Japan, as the issuer of its own currency, has the status of “monetary sovereignty” and thus has tools to calm markets (mainly by buying JGBs through the BoJ).5Though MMTers point out that there is no intrinsic reason why bonds should be issued to cover public debt, MMT’s popularity with parts of the mainstream US left stems more from its bipartisan appeal. It also sustains the fantasy that the paper strength of a highly financialized US economy can be willed into renewed productive capacity through monetary operations alone. As such, MMT promises an end run around the difficult work of political struggle, displacing questions of class power with an emphasis on the technocratic management of currency. Because the vast majority of Japanese securities are held domestically, this also insulates Japan from doomsday scenarios.
Both positions, which cite Japan as a case study in either managing or mismanaging public debt, are inadequate—albeit for different reasons. Investors conflate shifts in portfolio strategy with broader systemic risk, projecting their own exposure—particularly the unwinding of yen-funded carry trades that allowed them to borrow cheaply in Japanese currency—onto a system that enriches them. MMT, by contrast, correctly rejects fiscal panic narratives about Japan’s supposed default risk but remains wedded to a closed-economy framework that privileges the state’s ability to take on debt without considering how general conditions of profitability—such as overproduction, falling profit rates, and the increasing reliance on private credit for a basic level of social reproduction—have allowed finance capital to dominate capital accumulation.
Recent anxieties over global bond markets and public debt are better understood not as signs of imminent state insolvency but as symptoms of a crisis-prone capitalist system increasingly reliant on state-facilitated borrowing that enriches investors while deepening inequality.
A Marxist approach foregrounds what both perspectives overlook, namely that monetizing public debt is an outgrowth of a crisis-prone capitalist system that has become increasingly reliant on state power to facilitate cheap borrowing while deepening inequality through massive public-private transfers.6Carolina Alves, one of the few scholars to look at bonds from a Marxist perspective, argues that fictitious capital depends on capitalization. See Carolina Alves, “Fictitious Capital, the Credit System, and the Particular Case of Government Bonds in Marx,” New Political Economy 28, no. 3 (October 2022): 398–415, https://doi.org/10.1080/13563467.2022.2130221. A critical political economy analysis also probes how this money is spent and whether it ever becomes money capital invested directly in production, a point made relevant by the example of cheap money in Japan. Despite its high debt-to-GDP ratio, Japan has maintained stability through low yields and domestic ownership of bonds, an arrangement made possible in large part by private investors’ large holdings of foreign assets. While this fits with the major claims of MMT, this success is historically contingent and may be reaching its limits.
Given the opacity of global finance and its remoteness from the lives of workers, it is worth asking: What can anticapitalist strategies gain from analyzing debates on global bond markets and how can this inform class struggle? For one, demystifying these complex debt instruments shows how individual states compete for capital, even as international finance capital undermines these efforts at the national level. State issuance of public debt attracts speculative traders, central bankers, and money managers while compromising social welfare spending and domestic tax policy. This recursive loop of finance capital also undermines social reproduction as experienced in homes and families. As Marx reminds us, capitalism is an inherently unstable and exploitative system built on contradiction—its success depends on the very class it exploits. In today’s financialized capitalism, the link between exploitation of workers and profits appears disconnected. Value theory, understood as a theory of historically constituted capitalist social relations, offers a way to reconnect debt, credit, and borrowing back to material processes of value production and distribution.
To make these links, we begin by outlining Marx’s general theory of money, which provides a framework for analyzing government securities as a form of fictitious capital.7For an excellent overview of Marx’s theory of money, see Ramaa Vasudevan, “The Significance of Marx’s Theory on Money: Marx’s Analysis of Monetary Phenomena Has Remarkable Resonance in Today’s World,” Economic and Political Weekly 52, no. 37 (2017), available at https://mronline.org/2017/09/18/the-significance-of-marxs-theory-on-money. Using the example of the US Treasury market, we show how the monetizing of its public debt mediated the rise of neoliberalism and aided the US hegemonic position. We then turn to Japan to underscore how debt pressures there are best understood not as state (in)solvency, as the investor class so frequently frames it, but as an example of the capitalist state form managing Japan’s place in a changing global currency hierarchy while navigating its own domestic crisis of reproduction. Paradoxically, recentering the capitalist state form highlights the limits of the state to constrain speculative bets on public debt that are by no means nationally bounded. While swap lines between central banks linking the United States with its allies represent a greater state involvement in providing liquidity for investors, the recent growth of shadow banking and money markets convert public debt into private wealth. This problem cannot be addressed at the level of national monetary policy alone, since understanding the links between private demand for public debt and the expansion in government securities requires conceptualizing capital as a totality. From this perspective, contemporary bond-market tensions do not signal an imminent crisis of state solvency, but a reconfiguration of global profitability, liquidity, and access to dollar-denominated assets as world money—dynamics that neither fiscal panic nor closed-economy monetary theory can adequately explain.
Your Word Is Your Bond
Corporate and public debt have reached staggering levels. Nowhere is this more evident than in the massive $30 trillion market for USTs.8The total outstanding national debt includes intergovernmental debt and is over $37 trillion. The US Treasury debt represents $30 trillion of this total outstanding debt. According to the latest data provided by the US Treasury, “As of December 2025 it costs $355 billion to maintain the [total national] debt, which is 19% of the total federal spending in fiscal year 2026.” “What is the National Debt,” Fiscal Data, accessed March 4, 2026, https://fiscaldata.treasury.gov/americas-finance-guide/national-debt/#breaking-down-the-debt. Historically, the Treasury market has been viewed as a safe haven and highly liquid market, absorbing capital flows during periods of market volatility. Both mainstream economic theory and heterodox MMT view government securities as a linchpin in global finance but, whereas the latter argues that sovereign debt issued by a state that controls its own currency has no quantitative limit, the former points to the dangers of inflation that attend high levels of government borrowing. The investor class tends to narrowly interpret price signals in global bond markets in ways that comport with the neoclassical-inspired monetarist view, which holds that control over the money supply is key to stemming inflation.9Simon Clarke, Keynesianism, Monetarism and the Crisis of the State (Cheltenham: Edward Elgar Publishing, 1988), 287–307. MMTers counter that states are not constrained in the same way as a household budget and that thresholds for debt tolerance are purely theoretical.10Stephanie Kelton argues that “Copernicus and the scientists who followed him changed our understanding of the cosmos, showing that the earth revolves around the sun and not the other way around. A similar breakthrough is needed for how we understand the deficit and its relationship to the economy.… MMT gives us the power to imagine a new politics and a new economy, moving us from a narrative of scarcity to one of opportunity.” Stephanie Kelton, The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy (New York: Public Affairs, 2020), 10.
The mainstream view on public debt—a position that includes neoclassical economists, traditional Keynesians, the financial press, and investors—views monetary policy through the lens of fiscal policy, rendering the money supply its chief analytical concern. Such a view has roots in the Smithian barter myth to explain the origins of money. In contrast, post-Keynesian MMT conceptualizes the state as being able to mitigate the worst effects of capitalism’s booms and busts. Such optimism stems in part from a Chartalist view of money that roots its emergence in state authority.11Chartalism, which was developed by Georg Friedrich Knapp in the early twentieth century, is often described as the “state theory of money.” By specifying the unit of account and medium of payment, the state, according to this view, generates demand for money, which it in turn is recouped through taxation. In this genealogy, the ability of the state to collect taxes and establish a unit of account grants governments a greater latitude to intervene in market economies than the neoclassical view acknowledges. Yet what unites both perspectives is a shared belief that the nature of money is unchanging; money, for them, is an analytical given whose basic functioning remains consistent across historical periods. This generalization misses that, within capitalism, producers have no direct way to exchange the products of their labor except through markets mediated by money. That is, different concrete labors can only be made commeasurable through money. As Marx recognized, commodity exchange requires that money stands outside all other commodities in order for value to materialize. In the Marxian account of money’s origins, the development of the world market in turn feeds the growth of credit and banking operations, transforming money’s functions from mere unit of account and medium of exchange into a social relation whose fetishistic appearance makes it appear as self-valorizing.12For a sympathetic critique of MMT, see Costas Lapavitsas and Nicolas Aguila, “Modern Monetary Theory on Money, Sovereignty, and Policy: A Marxist Critique with Reference to the Eurozone and Greece,” Japanese Political Economy 46, no. 4 (2020): 300–26, https://doi.org/10.1080/2329194X.2020.1855593.
These differing starting points are important since, as Jacob Wilson notes, “MMT conceptualizes the state into a powerful tool for economists to rationalize the irrational market.”13Jacob Wilson, “Nationalism and Capitalism’s Ever-Spiraling Crisis: Review of Streeck’s Taking Back Control and Merchant’s Endgame,” Spectre, March 18, 2025, http://doi.org/10.63478/3JF7IZ8N. Similarly, Jamie Merchant has recently argued that MMT remains mired in the money fetish. When applied to the United States, MMT has difficulty seeing that the “‘monetary sovereign’ does not fully control its own currency as world money, but remains subordinated to it and condemned to serve its own creation.”14Jamie Merchant, Endgame: Economic Nationalism and Global Decline (London: Reaktion Books, 2024), 134. If money is not a creature of the state, how do government securities circulate and get treated as money without being money proper? To answer these questions, we must exit “the hidden abode of production” where Marx described the production of surplus value and return to the surface of a noisy marketplace now mediated by finance capital. It is the scaling up from local economies to the world market where money begins taking on the familiar forms that we recognize today. Marx narrates this passage conceptually, rather than historically, arguing that at a certain stage of production, “credit money stems directly from money’s function as a means of payment, because debt certificates for commodities that have already been sold keep circulating as a way to transfer debt from one person to another. But as the credit system expands, so does money’s function as the means of payment. Money thus takes on its own peculiar forms of existence, and it is in these forms that resides in the sphere of large-scale commercial transactions.”15Karl Marx, Capital, vol. 1, trans. Paul Reitter (Princeton University Press, 2024), 112–13.
In the Marxian account of money’s origins, the development of the world market in turn feeds the growth of credit and banking operations, transforming money’s functions from mere unit of account and medium of exchange into a social relation whose fetishistic appearance makes it appear as self-valorizing.
When these transactions become increasingly complex and future-oriented, money, as a means of payment, “becomes the universal commodity of contracts,” allowing for the settling of rents, taxes, and other obligations. This conceptual metamorphosis is dependent on money entering the global market as world money. Here, Marx explains, “money begin[s] to function in its full capacity as the commodity whose natural form is also the directly social form,” singling out gold as the “mode of existence” most “adequate to the concept of money.”16Marx, Capital, vol. 1, 114–15. Today the dollar plays a similar structural role in world trade. Just as the pound sterling, backed by gold, once anchored global trade, the greenback forms the most important currency in the reserves of central banks.17In the late nineteenth century, the pound sterling, which was backed by gold, was the de facto reserve currency. Gold played a minor role in Bank of England’s innovative financial strategies. See chapter 4 of David McNally, Blood and Money: War, Slavery, Finance, and Empire (London: Haymarket Books, 2020). The dollar’s dominance since the end of Bretton Woods necessitates that central banks preserve the value of their dollar reserves, which is supported by the buying and selling of US public debt. The growth of the Treasury market owes in part to the dollar’s reserve status, a historical contingency that nonetheless fulfills a crucial role in greasing capital’s global circuits.
What matters is not money’s physical form (bullion or paper fiat) but rather its social role. From this vantage point, Marx was able to show how hoarding plays an important part in establishing the credit and the banking system. As Suzanne de Brunhoff noted in her pathbreaking work, hoarding preserves money as a store of value while also forming a reserve fund for capital to draw on during times of crisis. In contrast to John Maynard Keynes’s “liquidity preference,” which rooted investor behavior in individual psychology and “animalistic spirits,” Marx’s notion of hoarding signifies a disruption in the circuit of commodity exchange (C–M–C), specifically the withdrawal of money from circulation (C–M…M–C). States can do little to prevent this interruption in capital’s circuits. As de Brunhoff emphasized, “this is why monetary power of the state is necessarily limited by the social power which money gives to the private individuals who hoard it.”18Suzanne de Brunhoff, Marx on Money, trans. Marjorie Beale (London: Verso, 2015), 128.
Securities represent a form of hoarding that temporarily withdraws money from circulation while simultaneously accruing profit from interest. Factoring in the functional role of hoarding recalls Simon Clarke’s insight that “the state cannot stand above value relations, for the simple reason that the state is inserted in such relations as one moment of the class struggle over the reproduction of capitalist relations of production.”19Simon Clarke, “The State Debate,” in The State Debate, ed. Simon Clarke (New York, Macmillan, 1991), 51, available at https://legalform.blog/wp-content/uploads/2020/10/clarke-the-state-debate.pdf. For Marx, the state issues bonds to convert borrowing into spending, producing claims on future value that then circulate as fictitious capital. “All these securities,” Marx argued, “actually represent nothing but accumulated claims, legal titles, to future production.”20Karl Marx, Capital, vol. 3, trans. David Fernbach (London: Penguin Classics, 1981), 599. In contrast to Chartalist or MMT views, which locate money’s power in state-issued currency and taxation, a Marxian view argues that endogenous money creation is not driven primarily by state spending, but by capital’s need for money that can be turned into money capital. As Marx describes, “The state has to annually pay its creditors a certain amount of interest for the capital borrowed from them. In this case, the creditor cannot recall his investment from his debtor, but can only sell his claim, or his title of ownership. The capital itself has been consumed, i.e., expended by the state.… Not only that the amount loaned to the state no longer exists, but it was never intended that it be expended as capital.” Such borrowing reproduces fictitious capital on an ever-expanding scale. When these “promissory notes become unsalable, the illusion of this capital disappears.”21Marx, Capital, vol. 3, 595.
This illusion saturates contemporary finance, where instruments like credit default swaps and a poorly regulated basis trade work to leverage small price differentials into profits. The proliferation of this trade lends capital the appearance of self-valorization, as if by innate magical properties. Bonds are initially issued on primary markets, but they rapidly circulate on secondary markets, where prices orbit around inflation expectations and interest rates. Today, the vast money markets are where bonds become tradable assets. Closely linked to the money market are repurchase agreement (repo) markets where securities serve as collateral for borrowing purposes. Securities are exchanged with a promise to repurchase them at a higher price, temporarily transforming a bond into money, which allows investors to meet liquidity needs without selling off assets. Despite the dizzying array of debt issuance, profit on bonds still stems from two primary sources: fixed coupon payments (periodic interest payments fixed at issuance) and capital gains on bond sales. Since the price of bonds and yields are inversely related, recent spikes in the latter have been interpreted by the financial press as evidence for public debt outpacing economic output.
As private ownership of USTs now outstrips central bank holdings, the expansion of shadow banking has aided investors’ ability to shift money in and out of bonds and stocks, further removing money from productive investment. As Marx noted, the industrial circuit begins with money capital to purchase means of production and labor power before becoming productive capital. But the chaotic nature of market exchange means the realization of the surplus value contained within commodity capital is often prone to interruptions. Rebecca Carson argues that “due to the asymmetry of the circuits”—the money capital, productive capital, and commodity capital circuits that Marx sketches out in volume 2 of Capital—“there needs to be a universal equivalent that can mediate [the] disjunctive time” that governs their distinct movements.22Rebecca Carson, Immanent Externalities: The Reproduction of Life in Capital, (London: Haymarket Books, 2024), 135. Credit money, which historically developed from private hoards, fulfills this function by providing latent money capital. Yet, today, this borrowing is rerouted to the buying and selling of tradeable securities, much of which produces no new value and remains purely speculative despite its tradability.
As de Brunhoff stressed, securities “are not subject to either the movement of the circulation of capitals, or the circular movement of the credit financing of productive activities.” Instead, fictitious capital is governed by its own “laws of motion” whose distinct logic allows their claims and titles to “circulate indefinitely.”23Brunhoff, Marx on Money, 95. As profits from fictitious capital increase and taxation of wealth decreases, the gap between state revenue and spending grows, further fueling debt issuance while redistributing wealth upward. In this expanding web, more working-class savings are drawn into an interdependent global financial system that transcends the monetary policy of any single state. To understand “the dazzling money form” and its links with public debt, we must then avoid reducing money to state power at the same time being cognizant of the state’s institutional role in facilitating conditions favorable to financial accumulation.24Marx, Capital, vol. 1, 139.
The international reach of modern finance constrains even hegemons. Because a large portion of global trade is invoiced in US dollars, the United States can run persistent deficits. This trade-off generated a structural paradox: to the rest of the world, the dollar represents a means of payment, whereas to Americans the currency serves as a means of purchase that, in theory, allows the United States to acquire goods and resources from abroad without producing an equivalent value of exports because it can issue the internationally accepted means of payment itself.25Maria N. Ivanova, “The Dollar as World Money,” Science & Society 77, no. 1 (January 2013): 44–71, https://doi.org/10.1521/siso.2013.77.1.44. In its role as world money, the amassing of dollars globally has created a monetary infrastructure for US hegemony, with the Federal Reserve occupying a pivotal position in managing a system that provides imperial tools to deploy, against even its allies.26For an overview of these trends, see Izzy Plowright, “Dollar Signs: Interview with Rohan Shah,” Spectre, September 9, 2025, https://doi.org/10.63478/LAXCJ0HE.
The Japanese Malaise
The growth of private credit and the increase in private ownership of US Treasuries limit the extent to which states can intervene into financial markets, even as the system depends on states to monetize public debt. In this latter capacity, states supply liquidity through the central bank, which in turns furnishes cheap borrowing through commercial banks.
As profits from fictitious capital increase and taxation of wealth decreases, the gap between state revenue and spending grows, further fueling debt issuance while redistributing wealth upward. In this expanding web, more working-class savings are drawn into an interdependent global financial system that transcends the monetary policy of any single state.
The Japanese case is an important illustration of these dynamics: Japan’s own large public debt has proven compatible with financial stability because low yields on its domestic bonds are offset through profitable investment across global markets. Most of the bonds thought to be held by Japan are in fact held by private financial actors rather than the state. In 2023, Japanese insurers alone held over $200 billion in US bonds, within a broader portfolio of more than $500 billion in foreign bond assets. Private banks accounted for an additional $300 billion. Japan’s largest single investor, the Government Pension Investment Fund, allocates roughly half of its portfolio internationally, with approximately half of those assets in bonds—amounting to around $400 billion across multiple sovereign issuers.27Brad W. Setser, “The Japanese Bid for Foreign Bonds After the End of Yield Curve Control,” Council on Foreign Relations, March 18, 2024, https://www.cfr.org/articles/japanese-bid-foreign-bonds-after-end-yield-curve-control. By contrast, the Japanese government’s direct holdings of foreign bonds, via its foreign exchange reserves, total just under $1 trillion. The balance of ownership clearly lies with private investors, complicating claims that treat Japan’s bond holdings as a straightforward expression of state policy.
The higher returns on US assets grant the United States the “exorbitant privilege” of issuing the world’s de facto reserve currency. But, for foreign investors, USTs provide a steady rate of return that has helped cover for domestic economic troubles, which can be seen in Japan’s own mounting public debt. At around 260 percent, Japan has the highest debt-to-GDP ratio among wealthy countries. This discrepancy is due in part to Japan’s bond issuance and holding patterns, both of which are shaped by its structural position in a global currency hierarchy that reflects the multisided relations through which the United States, as capitalist hegemon, emerges as the “consumer of last resort.” Most conventional narratives about Japan’s large holdings of US government securities and T-bills begin by recounting Japan’s long-running trade surplus with the United States. Beginning in the 2000s, China pursued a similar developmental path, which likewise generated dollar reserves that resulted in both East Asian powers—rivals for export markets yet tightly integrated through supply chains—amassing large holdings of USTs.28 China, it should be noted, has decreased its holdings of USTs in the last decade as it shifts to reduce its exposure to the US weaponization of the dollar along with its recent gold purchases. An unwillingness to lift capital controls on the yuan prevents its currency from achieving reserve status even as China diversifies its reserves and deals increasingly in non-US denominated currencies in bilateral trade. Though these dollars can be used to purchase commodities like oil, which are invoiced in US dollars, they are also recycled into the buying of US public debt to sustain patterns of production, circulation, and exchange. The result is cheap consumer goods in the United States with the continuing recycling of capital from East Asia and elsewhere that sustains the “exorbitant privilege” of the United States.
But while this has resulted in a potent investment strategy for Japan, the country’s domestic flows show the limits of monetary solutions to broader economic problems. Japan’s high public debt has not spurred equitable growth. Instead, loose monetary policy has fueled asset speculation and stock buybacks while real wages stagnate, revealing how state-mediated debt often reinforces inequality and economic hardship rather than relieving it. Japan’s ability to convert US dollars into interest-bearing assets has also helped sustain its historically low-inflationary environment, which until recently made borrowing in its currency attractive to investors outside Japan.
Following its neoliberal turn in the wake of an asset bubble crash that followed Plaza, the Japanese government attempted to ensure smooth flow of money from the central bank to commercial banks and through them to firms and other private borrowers, using mechanisms such as setting the policy interest rate at zero, hoping that cheap borrowing costs would incentivize commercial banks to lend and firms to invest.29Kazuo Ueda, “The Transmission Mechanism of Monetary Policy Near Zero Interest Rates: The Japanese Experience, 1998–2000,” in Monetary Transmission in Diverse Economies, ed. Lavan Mahadeva and Peter Sinclair (Cambridge: Cambridge University Press, 2009), 127–36. Please note that in the body of the essay, Japanese names appear in Japanese order with family name first. Japanese names in footnotes appear in the order they appear in the original publication. This strategy reflected the conventional wisdom that lowering the “price” of money would move more of it into productive investment. In post-bubble Japan, however, this so-called transmission mechanism failed. On the banking side, institutions still recovering from the crisis of the 1990s were burdened with nonperforming loans. Their primary focus was not on expanding credit but on repairing their balance sheets through a painful process of deleveraging. This made them risk-averse and reluctant to extend new loans, even while sitting on increased reserves rooted in liquidity generated by the BoJ. At the same time, companies were also deleveraging, paying down their own corporate debt that had accrued during the decade-long economic downturn. Facing deflation and weak domestic consumer demand, firms saw little incentive to borrow for capital investment or expansion, no matter how low interest rates fell. This simultaneous lack of lending and reluctance to borrow created “a liquidity trap”—the BoJ pumped vast quantities of money into the banking system, only for it to fail in circulating into the real economy as either productive investment or consumption.30R. Taggart Murphy, “Rethinking Japan’s Deflation Trap: On the Failure to Reach Kuroda Haruhiko’s 2% Inflation Target,” Asia-Pacific Journal: Japan Focus, February 1, 2016, https://apjjf.org/2016/03/murphy.
Confronting persistent deflation, the BoJ pioneered a groundbreaking Quantitative Easing (QE) policy from 2001. Since traditional tools were ineffective because short-term interest rates were already at zero, the BoJ instead began dramatically increasing the quantity of money with the stated aim of loading commercial banks with massive excess reserves. This was a centralized effort to both prop up the system and prime a mindset for growth by convincing businesses and households that deflation would end with a deluge of cash, thereby incentivizing them to spend and invest rather than hoard. This injection of money into the system ended up becoming its own form of stagnation. Despite policies aimed at propping up Japan’s capitalist system, the newly created liquidity did not spur significant new business investment. Instead, it found other destinations. A significant portion flowed into the Japanese government or bonds, as banks used their excess reserves to purchase safe sovereign debt and stabilize their balance sheets, while only modestly increasing their lending to businesses and curtailing interbank lending. They, effectively, hoarded the money.31David Bowman et al., “Quantitative Easing and Bank Lending: Evidence from Japan” (Discussion Paper 1018, Board of Governors of the Federal Reserve System, Washington DC, 2011), available at https://www.federalreserve.gov/pubs/ifdp/2011/1018/ifdp1018.pdf. This had the effect of keeping government borrowing costs among the lowest in the world while another portion was shifted into equity markets, both in Japan and abroad. The Japanese stock market increased dramatically during a spectacular run of “bull” years post-2008, despite an overall climate of stagnation. This primarily benefited firms and large investors.
While QE helped prime stock markets, a vast amount was simply held as idle excess reserves parked at the BoJ itself, where commercial banks could earn a tiny but risk-free interest rate of around 0.1 percent.32“What Is the Complementary Deposit Facility?” Bank of Japan, accessed March 4, 2025, https://www.boj.or.jp/en/about/education/oshiete/seisaku/b37.htm; Ikuko Samikawa et al., Financial Research Team Report for FY 2023(3) (Tokyo: Japan Center for Economic Research, 2014), available at https://www.jcer.or.jp/jcer_download_log.php?f=eyJwb3N0X2lkIjoxMTQ2OTAsImZpbGVfcG9zdF9pZCI6MTE0Njk1fQ==&post_id=114690&file_post_id=114695. The BoJ tried negative interest rates designed to encourage banks to move this money, but risk-averse institutions—already holding huge numbers of bonds—largely parked cash holdings rather than investing in expanded production.33Reuters, “Bank of Japan Launches Negative Interest Rates,” Guardian, February 16, 2016, https://www.theguardian.com/business/2016/feb/16/bank-of-japan-launches-negative-interest-rates-yen-markets. This money creation largely remained stuck in financial markets, creating both a circle of bonds and other safe assets and central bank accounts that fueled speculative stock bets rather than fueling wage increases or productive investments.
The QE experiment of the 2000s failed to decisively defeat deflation or revive private sector credit demand. This paved the way for the much more aggressive Abenomics program in 2013, whose core monetary component, Quantitative and Qualitative Easing, expanded the 2000s framework to an unprecedented scale and scope. It involved massive purchases not only of JGBs but also of riskier assets like exchange traded funds, leading to the BoJ holding over $500 billion US dollars in stocks and directly aiming to feed asset prices, a boon for firms and big investors alike.34“(Reference) Monetary Policy under Quantitative and Qualitative Monetary Easing Introduced in 2013,” Bank of Japan, accessed March 4, 2026, https://www.boj.or.jp/en/mopo/outline/ref_qqe.htm; Aya Wagatsuma, “What the BOJ Unwinding Its ETF Holdings Means for Japan,” Bloomberg, September 19 2025, www.bloomberg.com/news/articles/2025-09-19/japan-etfs-why-the-boj-is-unwinding-its-537-billion-stockpile#selection-1157.0-1157.55. The move to inject money directly into a wider range of financial channels further boosted asset prices at the same time that wages remained flat.
Money creation largely remained stuck in financial markets, creating both a circle of bonds and other safe assets and central bank accounts that fueled speculative stock bets rather than fueling wage increases or productive investments
This recent history has been interpreted differently from the point of view of MMT and the mainstream consensus that has forged over the supposed sustainability (or not) of Japan’s ballooning debt. The latter looks upon Japan’s QE as a pending default crisis while the former assumes money injections can autonomously stimulate economic activity. A Marxist reading highlights conceptual limits to both approaches: without production, which requires money capital, the social surplus stagnates. Commodities do not arise from money’s form, but from productive relations it helps mediate. If there is a core weakness of MMT, it is that it does not inquire enough into the way all this cheap money is spent while having no way to distinguish money from money capital. MMT’s focus on monetary sovereignty and full employment also fails to address the practical historical circumstances that see capitalist states like Japan prioritize financial speculation and regressive taxation over social reproduction, deepening crises of reproduction amid demographic decline.35For a sympathetic but thorough critique of MMT, see Eduardo Garzón Espinosa, Modern Monetary Theory: A Comprehensive and Constructive Criticism (London: Routledge, 2024). For coverage of MMT’s lack of reckoning with the “political economy difficulties” of implementing progressive policies, see Thomas I. Palley, “Money, Fiscal Policy, and Interest Rates: A Critique of Modern Monetary Theory,” in Review of Political Economy 27, no. 1 (2015). For a discussion of how MMT overlooks the historic specificity of capitalist social relations, see Michael Roberts, “Modern Monetary Theory – Part 1: Chartalism and Marx,” Michael Roberts Blog: Blogging from a Marxist Economist, January 28, 2019, thenextrecession.wordpress.com/2019/01/28/modern-monetary-theory-part-1-chartalism-and-marx. Thus, MMTers tend to fetishize money’s formal capacity to valorize itself when holding up Japan as an example of their theory of state spending without considering the historical contingencies that gave rise to this particular situation.
Moreover, there are signs Japan may be approaching the limits of this model. A weak yen, rising interest rates, and plans to reduce both government spending and BoJ bond holdings point to a strategic shift, lending credence to the investors class’s warning that the public debt must be restrained.36See, for example, Mia Glass, “Why Investors Are Worried About Japanese Bond Markets,” Bloomberg, July 23, 2025, www.bloomberg.com/news/articles/2025-05-28/why-investors-are-worried-about-japan-s-bond-market. Auctions of forty-year Japanese bonds saw record-low demand and sent yields to record highs in summer 2025, spooking investors globally. A similarly tepid bond auction occurred in January 2026, which further sent yields to record levels.37John Cheng, “Japan Bond Auction Sees Drop in Demand on Caution Into Election,” Bloomberg, February 2, 2026, www.bloomberg.com/news/articles/2026-02-03/japan-s-10-year-bond-sale-demand-weaker-than-12-month-average. The idea that Japanese capital will be repatriated, however, ignores the continual attractiveness of holding higher-yielding foreign assets, much of which hinges on speculative bets on future interest rates. According to Marx, “There is no such thing as a natural rate of interest.”38Capital, vol. 3, part 5, chap. 22. Interest is rather a product of the competition for a portion of the total available loanable capital. As seen in the case of Japan, the rate of interest has responded to factors like persistent deflation that have since dissolved, leaving interest rates more open to supply and demand.
MMTs luminaries are certainly not without trenchant critiques of how Japan has approached its borrow-and-spend “lost decades.” William Mitchell, for example, has frequently pointed to how spending was never strategic, consistent, or large-scale enough to achieve the primary MMT aim of full employment. He also singles out particular austerity missteps like the slowdowns in spending caused by regressive tax spikes, which he calls examples of “sales tax recession” and “the direct outcome of neo-liberal incompetence.”39William Mitchell, “Japan Is Different, Right? Wrong! Fiscal Policy Works,” William Mitchell: Modern Monetary Theory (blog), August 15, 2017, https://billmitchell.org/blog/?p=36631. However, as Japanese Marxist Itoh Makoto observed, “MMT also failed to achieve its target to resolve deflation and prolonged industrial stagnation.”40Makoto Itoh, “Japanese Capitalism in Multiple Crises,” Japanese Political Economy 47, no. 4 (2021): 309, https://doi.org/10.1080/2329194X.2021.2012700. One reason this target failed was that not enough attention was paid to the rising costs of inputs and the wider context of overproduction. Businesses with access to cheap credit still have to purchase means of production, often through borrowing. The higher profits in finance deterred productive investments that cast doubts on MMT scholars who often write as though unemployment is simply a matter of poor policy.41L. Randall Wray, “The Job Guarantee: A Government Plan for Full Employment,” Nation, June 8, 2011, https://www.thenation.com/article/archive/job-guarantee-government-plan-full-employment. A Marxist critique shows that capital benefits from a “surplus population”(or “reserve army of labor”) thrown in and out of precarious employment to force workers to accept lower wages and worse conditions.
These problems aside, much of the MMT literature has not sufficiently reckoned with Japan’s failures to address inequality in the period when its fiscal and monetary policy was supposedly at its most radical.42There are exceptions like William Mitchell, who links austerity policies with rising inequality. William Mitchell, “The Japanese Denial Story – Part 1,” William Mitchell – Modern Monetary Theory (blog) January 3, 2022, https://billmitchell.org/blog/?p=48952. In the 2010s, Japan’s conservative Prime Minister Shinzo Abe’s “Abenomics” doctrine saw a loose money policy, extremely low or even negative interest rates. As critics of MMT like Thomas Palley have frequently pointed out, MMT’s focus on vertical (state-money) moves ignores the horizontal (bank-credit) transactions that have a historical tendency to drive up asset prices.43Thomas I. Palley, “Money, Fiscal Policy, and Interest Rates: A Critique of Modern Monetary Theory,” Review of Political Economy 27, no. 1 (2015): 1–23, https://doi.org/10.1080/09538259.2014.957466. This rebuttal is confirmed by Japan’s sky-high stock prices, which have taken on an alarming appearance alongside stagnant wages and anemic growth. As the market climbed to new highs—the Nikkei Index soared from around nine thousand in mid-2012 on the eve of Abe’s takeover to over fifty-three thousand today—the wages of ordinary workers remained stuck in decades-long stagnation, with virtually no change from the 1990s, despite this being a cornerstone of Abenomics’ public pitch for higher wages.
Such unfulfilled policies recall the limits of political power within a capitalist system. While the form of the capitalist state cannot be derived directly from the category of capital, there has been a historical tendency of capitalist elites, because of their perceived role in national economic life and very real material resources, to exercise a powerful influence over policy. In 2015, Abe was riding high support rates, but his direct request for cash-flush firms to raise wages was simply rebuffed by the business lobby. Keizai Doyukai (Japan Association of Corporate Executives) head Yoshimitsu Kobayashi responded to Abe’s call, stating that “the government is hoping for higher wages, but the Keizai Doyukai, as an organization that corporate executives personally belong to, is not going to tell its members what to do.”44Stanley White and Izumi Nakagawa, “Japan Business Lobby Head Won’t Commit to Higher Wages,” Reuters, December 27, 2015, https://ca.finance.yahoo.com/news/japan-business-lobby-head-wont-commit-higher-wages-043451086–business.html. While there has been no significant move on wages, policy proposals of the Keizai Doyukai and similar organizations reflect the neoliberal consensus of the business community and conservative politics; they now call for “labor mobility” and “upskilling,” and deploy an upbeat language of creative destruction. The imagined result is that “companies that have fulfilled their roles will exit the market, contributing to industrial renovation.”45Mutsuo Iwai, “What We Expect from New Government Building Consensus for Transition to New Economy and Society,” Keizai Doyukai, October 21, 2025, www.doyukai.or.jp/en/policyproposals/2025/251021.html. Contra MMT, which assumes that full employment is desirable from the point of view of capital, this is an example of leading CEOs being unwilling to raise wages while calling directly for a part of the population to be rendered surplus so as to better serve the needs of capital.
In the end, the liquidity unleashed by MMT-style policies was captured by capital, driving inequality and speculation rather than stable, equitable growth. As Costas Lapavitsas notes, “MMT underestimates the risk of financial asset speculation inherent to expansionary monetary policy…[and] ignore[s] the broader consequences of low interest rates for the economy, other than the impact on public debt sustainability.”46Costas Lapavitsas and the EReNSEP Writing Collective, The State of Capitalism: Economy, Society, and Hegemony (London: Verso, 2023), 147. MMT’s focus on monetary sovereignty overlooks the global character of finance capital without holding to a theory of social reproduction that centers class struggle. Even a “monetary sovereign” remains constrained by global profitability pressures and the hierarchical role of the dollar as world money. Japan’s experience also shows that ignoring the class-stratified nature of the state and financial markets renders MMT’s policy prescriptions not just ineffective, but actively conducive to financial bubbles and crisis.
As the market climbed to new highs—the Nikkei Index soared from around nine thousand in mid-2012 on the eve of Abe’s takeover to over fifty-three thousand today—the wages of ordinary workers remained stuck in decades-long stagnation, with virtually no change from the 1990s
While both mainstream consensus and MMT positions on public debt lack a theory of social reproduction, a Marxist account asks how money is spent within the household in ways that reproduce class along historically gendered social relations. Household spending, along with the increased redirection of working-class savings to the purchase of financial assets, highlight the problem of any singular focus on fiscal and monetary policy. Japan’s borrowing and the entwined asset speculation of its capitalists both at home and abroad has failed to address demographic decline and the crisis of reproduction it forebodes. Japan has a low birth rate and limited immigration. Women’s labor force participation rate is high, but a majority are in precarious part-time or contract positions and they frequently work a “second shift” caring for children or elderly relatives.47The second shift, a term coined by Arlie Hochschild with Anne Machung in the 1989 book The Second Shift: Working Parents and the Revolution at Home, refers to the shift of unpaid domestic and childrearing labor women often perform after they come home from their paid “first shift.” Facing a double cash and time squeeze, many women say that if they had more resources, they would have more children; in a few municipalities that have prioritized support for young families, the number of children per household has shot upward.48Justin McCurry, “Baby Boomtown: Does Nagi Hold the Secret to Repopulating Japan?” Guardian, May 29, 2023, www.theguardian.com/world/2023/may/29/baby-boomtown-does-nagi-hold-the-secret-to-repopulating-japan. Nationally, however, the ruling conservative party has prioritized “pork”—cash, contracts, and tax cuts for firms and other forms of public-to-private transfer—and kept medical rates negligible for the elderly voters key to maintaining their lock on electoral politics, while defining prenatal and natal care as the result of a “natural state”—that is, neither an illness or injury and thus not covered.49Population decline has become so acute that changes are currently planned, but high copays will still be a major obstacle for low-income families and there are widespread concerns that clinics will pivot to offering more expensive, uninsured care, and prenatal and emergency care will not be covered. Mainichi Shimbun Editorial Board, “Editorial: Japan’s Free Childbirth System Must Protect All Pregnant Women,” Mainichi, December 29, 2025, mainichi.jp/english/articles/20251229/p2a/00m/0op/023000c. As wages stagnate, young families often have to pay the equivalent of thousands of US dollars upfront before receiving partial reimbursement later, an insurmountable obstacle in the face of low wages with little hope for future raises. Japan also has inconsistent coverage for fertility treatment, leaving family planning at the mercy of work plans or private insurers, the latter of whom constitute a large customer of domestic bonds. These conditions demonstrate a systemic failure to prioritize social reproduction, where the financial and political logic of supporting elderly voters and the interests of capital directly undermine the material basis for young families.
The problem of social reproduction brings into sharp relief the contradictory role of money in a capitalist system: The ability of banks to create deposits and central banks to “prime the pump” do not confront the problem that workers must reproduce themselves by selling their labor power. No amount of public debt can cover for this contradiction. Japan has pushed bond offerings and liquidity to the point that rates are now soaring while wages and basic social supports have eroded. Both MMT and mainstream views have entrenched deficit spending in Japan and across wealthy economies without engaging with the problem of how state policy under capitalism takes on its particular form and how money mediates these social relations by way of capitalist accumulation.
Conclusion
Contextualizing Japan’s current fiscal state and highlighting Japanese capital’s significant role in sustaining US public debt speaks to both the system’s fragility and strengths. Japan’s domestic situation cannot be reduced to the portrait of shrewd monetary sovereign favored by MMT anymore than its stresses can be seen as the harbinger of potential global debt risk. To claim either would be mired in the same national frame underwriting Trump’s ever-shifting tariff regime. The logic of tariffs fundamentally misapprehends the nature of global capitalist interdependence, reducing complex trade relations to simplistic national antagonisms. Bonds, in contrast, offer a clearer view of these entanglements since their very functions depend on transnational networks of accumulation whose profitability is partly tied to their ability to lubricate the financial system, providing credit and returns to investors worldwide.
Whether public debt is ultimately repaid is secondary to the spectral life that government securities assume as a tradable asset. In this sense, the US national debt figures into Japanese domestic spending in much the same way that it primes China’s industrial engine. All three exist in relation to each other. Thus, the US economy and its reproduction are formally impossible without Chinese industrial inputs and Japan’s role in supply chains; dead labor made invisible in conventional trade and finance narratives. This interconnectedness undercuts the idea that Japan or Europe can simply sell off their reserves. For one, the majority of these securities are privately held by institutional investors, pension funds, and nonstate investors. Secondly, exit from US assets to another “safe haven” is unlikely to be instigated by one country or trading bloc, even if Treasury holders can exert political pressure, as appears to be the case in Trump’s recent imperialist threat to annex Greenland. Moreover, the oft-repeated claim that China or Japan “owns” a part of the United States by way of buying public debt is to remain stuck in a static, zero-sum view of trade that reinforces nationalistic economic policy. While China has been slowly decreasing its Treasury holdings in recent years, it has little to gain from a sudden plunge in market value that would decrease the price of its current holdings. That said, its recent announcement of selling bonds denominated in US dollars adds a new twist to de-dollarization. As for Japan, its status as a US ally practically ensures that threats to use its Treasury holdings as leverage in negotiating trade deals is limited. While repatriation of Japanese capital would deprive the United States of a key historical buyer of USTs, its accumulated sum will remain intact so long as US assets continue to yield higher returns than JGBs.
A more dialectical approach to these questions reveals webs of mutual obligation spun together by antagonistic interests. It is to the latter where economic nationalism appears to resolve these contradictions through the coordination of central banks, public tax policy, and fiscal spending. Each of these policy arenas though are shot through the uneven development of a capitalist financial system where the dollar and Treasuries reign supreme—for the time being at least. Threats of a revived “sell America” trade, along with ongoing instability in the global bonds market, point to the system’s vulnerabilities rather than the spread of global contagion. Given its fictitious character, there are no limits to issuing and monetizing public debt; the limits are instead located in the production of capital and the conditions for its reproduction. Seen this way, the dollar’s reserve status and Japan’s place in a global hierarchy of currencies continue to invoke the shadow of Plaza four decades on. What is different today is partly the inability of the United States to browbeat its allies and key trading partners into manipulating their currencies to an exchange rate that depreciates the US dollar and thus makes US manufacturing more competitive. Instead, a debt loop, rather than an impending debt panic, is the likely result of this continuing stagnation.
“The forms that reproduce capital,” Carson reminds us, “are distinct in character from capital’s impersonal relations [of domination].”50Carson, Immanent Externalities, 32. Social reproduction, in other words, remains other to capital’s valorization process, even as it is not separate from it. Within this contradictory space, fictitious capital and class struggle emerge as opposed yet dialectically linked. During Japan’s era of negative interest rates and QE, the expansion of public debt coexisted with stagnation, deferring crisis into the future through a “promise to pay.” As Japan’s deflationary decades recede, this link is breaking down. To ordinary households facing hardships—inflation in place of deflation, the second shift, rising cost of living, and so on—monetary policy appears inadequate. In a sign of mounting public distress, notoriously strike-averse Japan has seen an uptick in major strikes not seen for decades. This resurgence is not accidental: the strange and deferred temporality of debt is reconstituted in the present as class struggle whenever fictitious capital confronts the immediate conditions of capital’s reproduction. The debt can go on, but present conditions mean the abstract future of debt is no longer so easily postponed.