Andy Xie's Warning: Debt-Fuelled US and Japan Face a Reckoning as Treasury Yields Spike

The 10-year US Treasury yield touched 5.04 per cent last week — a level not seen since 2007, on the eve of the global financial crisis. For anyone who tracks Asian wealth, that number should stop you cold. It is the clearest signal yet that the world's largest economy may be losing its grip on the debt markets it has relied on for nearly two decades, and the ripple effects will be felt from Tokyo to Shanghai.

The man raising the alarm is Andy Xie, the Shanghai-based independent economist who has spent years warning about the fragility of debt-driven growth in the US and Japan. In a commentary published on September 23, 2026, Xie argues that whatever US Treasury Secretary Scott Bessent might say, Washington is not big enough to be "the house" that always wins in global markets. The evidence is hard to ignore: Bessent tripled a Treasury buy-back operation on September 10 to US$6 billion, an attempt to steady a market that is on course to absorb US$2.1 trillion in new government borrowing this year. The math is brutal. A US$6 billion buy-back against US$2.1 trillion in issuance is not intervention; it is a gesture. Meanwhile, oil prices have surged again as Iran tightens its hold on the Strait of Hormuz, and the yen slid even after Tokyo and Washington jointly intervened. Bessent, in a moment of bravado, dared currency traders to bet against the yen and himself, declaring: "I am the house now." The market was not impressed.

For readers who follow Asia's capital flows, the yen is the tell. Japan has been the world's largest creditor for decades, its households and institutions the quiet financiers of American deficits. When the yen weakens despite joint intervention, it signals that even Japan's vast savings cannot indefinitely anchor a system built on ever-expanding debt. The Strait of Hormuz adds another layer. Oil flows from the Gulf have fallen by more than 10 million barrels per day from pre-war levels, yet prices have remained relatively stable — a calm that Xie attributes partly to releases from US and other emergency reserves and lower Chinese demand. But he warns that the gap between paper and physical oil prices has widened since the war, meaning actual physical costs could turn out higher down the road. That is a slow-burning fuse under Asian manufacturing economies that import nearly all their energy.

Xie's core argument is uncomfortable for policymakers in Washington and Tokyo. Since 2007, major economies have relied on debt to maintain living standards. High inflation, he suggests, might be one way out — a stealth default that erodes the real value of obligations. But inflation is a blunt instrument. It punishes savers, distorts capital allocation, and can quickly become politically toxic. For Asia's wealthy, the implications are twofold. First, dollar-denominated assets are no longer the risk-free anchor they once were. Second, the yen's weakness — even with official support — raises questions about the reliability of Japan as a store of value. Capital that once flowed automatically into US Treasuries and Japanese government bonds may start looking for alternatives, whether in gold, commodities, or Asian currencies with stronger fundamentals.

The deeper story is about credibility. Bessent's buy-back and his "I am the house" bravado are attempts to project control. Markets, however, are not fools. They see the US$2.1 trillion borrowing requirement, the oil supply disruptions, and the limits of joint currency intervention. Xie's warning is not a prediction of imminent collapse; it is a reminder that debt-driven stability is a borrowed time. For Asia's billionaires and institutional investors, the message is clear: the old assumptions about US and Japanese debt are due for a rethink. The house does not always win — especially when it is leveraged to the hilt.