Is Japan in trouble?

Japan just lost its title as the world’s top creditor nation for the first time in 34 years, with Germany’s $4T in net external assets now at #1, ahead of Tokyo’s $3.7T and Beijing’s $3.6T.

What does this even mean? 

Japan is a ‘creditor’ because it owns more assets abroad than foreigners own in Japan (stocks, bonds, etc). When it’s vice versa, you’re a ‘debtor’.

We might instinctively like the sound of being a ‘creditor’ (you owe me) more than a ‘debtor’ (I owe you), but the pros and cons are pretty nuanced across borders.

In Japan’s case, there was a mix of factors at home and abroad that drove its investors and firms to stash their cash abroad for more than three decades:

• After Japan’s epic 1990s bubble popped, its central bank kept rates low to reflate
• That also kept Japan’s yen weak, making Japan’s exporters even more competitive
• And the resulting flood of cheap loans and foreign currency gave Japanese firms an arsenal to hoover up assets abroad where they could get a better return.

We’ve explored examples over the years, whether it’s Japan’s status as the single biggest holder of US government bonds ($1T), or Nippon’s bid to buy US Steel.

So… what’s changed? 

Japan’s foreign assets actually just grew to another record high, so this drop to the world’s #2 creditor doesn’t necessarily reflect a shift in Japan’s trajectory.

Rather, it’s Germany’s trajectory that’s shifted, with a surge in its net assets reflecting…

• Germany’s recession, which Ozempicked its appetite for imports
• Strong global demand for Germany’s high-value exports (cars, machines), and
• A strong euro versus the yen, pumping the value of Germany’s foreign assets.

So where’s the intrigue? 

Maybe ignore the breathless headlines about who’s winning gold or silver here.

Sure, it’s true the biggest creditor countries are, on average, very rich. But so are the biggest debtor nations: in fact, the world’s biggest debtor is also history’s biggest economy and its most effective income-generating machine — the United States.

For us, the value lies less in the rankings, and more in the trajectories. Here are three:

• First, Germany has (as our special edition foreshadowed) proven semi-resilient, adapting to Russia’s energy shock to still make high-value stuff the world wants
• Second, while Germany is selling less of that stuff to China (now increasingly a competitor), it’s selling more to the US, Poland, and elsewhere, which hints at…
• Third, as President Trump tries to rebalance economic ties between the US and China, big US-aligned exporters like Germany and Japan could stand to win.

But a lot really depends on where the dust settles after Trump’s Liberation Day tariffs.

Intrigue’s Take

And speaking of those tariffs… there’s been a bit of talk lately drawing comparisons between this 2025 ‘Trump Shock’ and the ol’ ‘Nixon Shock’ of 1971:

• Nixon imposed 10% tariffs, ended dollar-gold convertibility, and pushed trading partners to rebalance currency valuations to revive US industry, while
• Trump has now imposed his own 10% (+) tariffs and escalated his rhetoric around currency manipulation and dollar alternatives, also in an attempt to revive US industry.

But while both used US economic might in an attempt to reshape the global economy, history has judged Nixon’s move as targeted, temporary, and ultimately successful, not just for the US, but for a broader world that eventually adapted then thrived.

As for the Trump shock…? This story points us in two different directions: first, it hints at the underlying resilience of advanced economies to withstand that shock; but second, it also hints at the very same imbalance Trump’s team says he’s trying to address via that shock in the first place — the notion that these big German and Japanese asset surpluses abroad just reflect weak demand at home, which he sees as harming partners like the US.