This story caught my eye a couple of weeks ago, and I've been meaning to write about it but kept pushing it to the backburner because I had my plate full at the time. But it's too important to ignore any longer.

So what's going on?

Last month, Japan's Cabinet Office published their latest economic figures, and they were not good. Japan's economy shrank for the first time in a year, contracting by 0.7%.

That's bad news, especially since it happened even before the bulk of President Trump's tariff measures took effect. Now it's almost a given that Japan will continue shrinking this quarter, which would put the country in a technical recession.

I realize you probably don't spend much time thinking about Japan's economy. Most people don't. It's on the other side of the world and doesn't dominate headlines like the U.S. or China.

But Japan isn't just any country. It's one of the biggest creditors on Earth.

Japan holds over $3 trillion in net foreign assets and is the top holder of U.S. Treasuries—over $1 trillion as of 2025. Take a look at the graph below.

And it's not just bonds. Japanese institutions have billions tied up in U.S. stocks, corporate debt, and real estate.

But what happens if Japan suddenly needs to call that money home?

It would send shockwaves through global markets—driving up interest rates and making borrowing far more expensive for everyone. And because Japan has its fingers in so many pies, it wouldn't just rattle Wall Street… it could light the fuse for the next global recession.