But there is another player entering this equation: Japan.

For years, Japan has been one of the largest foreign holders of U.S. Treasuries. But the dynamics of its domestic bond market are changing. The yield on Japan’s 10-year government bond has reached around 3% for the first time since 1996. After decades of near-zero interest rates, Japanese assets are becoming increasingly attractive again.

And this creates an important problem. If Japanese yields continue to rise, the incentive for Japanese investors to hold foreign assets — including U.S. Treasuries — declines. In a more extreme scenario, we could see part of that capital flow back into Japan. And that is not good news for the U.S.

Large-scale Treasury selling would put downward pressure on bond prices and push yields higher. In other words, just as the U.S. government is already dealing with massive debt and rising interest costs, its borrowing costs could come under even more pressure.

And this is where Japan connects directly to the issue we discussed earlier: The debt crisis.

If interest rates remain high, the cost of servicing the debt keeps rising. But if policymakers respond by pushing rates lower through more accommodative monetary policy, liquidity increases — along with the risk of inflation and currency depreciation.

Eventually, policymakers may face the same choice: Debt crisis or inflation.

For the U.S., in an extreme scenario, allowing inflation to erode the real value of its debt may prove less painful than facing a Treasury market with persistently higher yields.

This is why U.S. Treasury Secretary Scott Bessent’s concerns about potential Japanese Treasury selling are worth watching. The issue is not just Japan.

If one of the world’s largest foreign holders of Treasuries begins reducing its exposure, the pressure can spill over into the entire U.S. bond market.

So what we are seeing in Japan may not simply be a story about the yen or the Japanese economy. It could be another piece of the same global debt problem — one that ultimately determines the direction of global liquidity and the price of gold.

And if this scenario plays out, the higher yields that are currently a headwind for gold could eventually become the very thing that forces policymakers toward more liquidity.

A debt crisis can be gold’s short-term enemy; the response to that crisis could become the fuel for its next major rally.

Perhaps that is why valuing gold based solely on today’s price misses the bigger picture.

The real question is: Who ultimately pays for all this debt?

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@RezaMacroEdge