The Daily Signal - Blame Japan, Not Trump: The Truth Behind the Market Drop and Greenland Deal | E.J. Antoni

Episode Date: January 31, 2026

When it comes to Greenland, Trump’s arguments about international trade, geostrategic locations, rare earths, etc., were all ignored by European leaders. In response, Trump threatened additional tariffs on many European countries. When markets opened last week, things turned red. Those suffering from Trump derangement syndrome couldn’t help themselves and immediately drew the conclusion that the stock market drop was the result of Trump’s harsh negotiating tactics with Greenland.And they were wrong. To find out why the markets tanked, you need to travel halfway around the world to a country that is “basically running ahead of the U.S. in terms of the life cycle of a debt crisis,” argues Heritage Foundation chief economist E.J. Antoni in today’s special video commentary. 👉For more videos like this, subscribe to The Daily Signal’s YouTube channel and enable notifications to be alerted the second a new video drops: https://www.youtube.com/dailysignal?sub_confirmation=1 00:00 Trump's Greenland Strategy and European Resistance 00:25 Market Reactions and Misinterpretations 03:31 Japan's Economic Turmoil and Its Global Impact 05:53 Strategic Importance of Greenland 07:36 Lessons from Japan and Future Implications Learn more about your ad choices. Visit megaphone.fm/adchoices

With Amex Platinum, you have access to over 1,400 airport lounges worldwide. So your experience before takeoff is a taste of what's to come. That's the powerful backing of Amex. Conditions apply. President Trump has been talking a lot about Greenland and has laid out a compelling case for the island's strategic importance to the U.S. But Europe has been incredibly stubborn on this issue, just like they were when Trump told them during his first term that they should diversify from Russian energy. Trump was literally laughed at by European leaders for that. In response to Europe's refusal to even discuss the Greenland issue, Trump threatened additional tariffs on many European countries.

When equity markets opened last Tuesday after the president's announcement, things turned red. Of course, those suffering from Trump derangement syndrome couldn't help themselves and immediately drew the conclusion that the stock market drop was the result of Trump's harsh negotiating tactics with Greenland. and they were wrong. There was a much bigger move on later news halfway around the world. Hi, I'm E.J. Antony for The Daily Signal. I'd like to talk about two countries today, Greenland and Japan. Now, aside from them, both being islands, they don't have much in common. They're on opposite sides of the globe, after all.

But they've both had a big impact on the news lately, and we should disentangle what's going on there. Obviously, President Trump has been talking a lot about Greenland. and has laid out a compelling case for the island's strategic importance to the U.S., for those who are willing to listen with an open mind anyway. But Europe has been incredibly stubborn on this issue, just like they were when Trump told them during his first term that they should diversify from Russian energy. Trump was literally laughed at by European leaders for that. But fast forward to Putin's invasion of the Ukraine, and now the Russians are the only ones laughing.

Since that conflict began, Europe has given more money to Putin via energy purchases than to the Ukraine in the form of aid. Once again, Trump was right. Likewise, Europeans didn't want to pony up and pay their NATO obligations after they'd essentially been freeloading off the American taxpayer for decades. But once Trump started playing hardball, those countries finally started increasing their contributions. When it comes to Greenland, Trump's arguments about international trade, geostrategic location, rare earths, etc., were all ignored. Now, that's understandably frustrating for an American president to be snubbed like that by European leaders, since you can basically divide European countries into two categories, ones that America saved and ones that America beat.

In response to Europe's refusal to even discuss the Greenland issue, Trump threatened additional tariffs on many European countries. When equity markets opened last Tuesday, after the president's announcement, things turned red, with the Dow Jones Industrial Average dropping more than 900 points, the biggest decline since October. Of course, those suffering from Trump derangement syndrome couldn't help themselves, and immediately drew the conclusion that the stock market drop was the result of Trump's harsh negotiating tactics with Greenland. And they were wrong. As my good friend Peter St. Ange has pointed out, Bitcoin trades around the clock and not just when stock markets are open. When Trump made his announcement on Greenland, there was almost no movement in the market

at all. But then there was a much bigger move on later news halfway around the world. Enter Japan. Last Monday, it was announced by Japan's new prime minister that the country would hold snap elections, with the ultimate goal being a whole series of reforms that many believed would spike government spending while reducing government revenue, i.e. tax receipts. In other words, the already poor situation with Japan's deficit and debt are set to get much, much worse. Japanese bonds crashed as a result because the bond vigilantes always get the final say on any government policy. This move is important for the U.S. for two reasons. First, there's something called the yen carry trade, and it relies on an artificial interest rate differential between the U.S. and Japan. Ever since the 1990s, the central bank in

Japan has been keeping interest rates extremely low in that country in order to finance growing budget deficits and a ballooning debt. If rates had been at natural levels, the interest on their national debt would have bankrupted the country by now. This created a whole, whole host of economic evils in the country, but that's for a different video. What's important here is that the interest rate differential allowed hedge funds to borrow artificially cheaply in Japan and then park the proceeds in U.S. assets. As long as rates in Japan were kept artificially low compared to here, the trade worked fine. But now the bond vigilantes are finally saying no. after last Monday's announcement, they pushed up yields on Japanese government securities with the 30-year yield setting new records and shorter-term securities like the 10 and the two-year at their highest levels since the 1990s.

As yields in the yen go up, the yen carry trade unwinds and liquidation ensues. Leveraged hedge funds quickly sold almost all the financial positions they had purchased with the proceeds from money borrowed artificially cheaply in Japan. they repaid the loans before the interest rate could skyrocket. Almost like an old-fashioned corner of one stock with short sellers caught naked, a seemingly unrelated event in Japan caused a broader market sell-off. All that to say, Trump's Greenland negotiating didn't really move the market at all. And for good reason. Just days later in Davos, Trump quickly hammers out a framework for how to move forward on Greenland.

and it might be even better than an outright purchase by the U.S. for the island. America will get the space needed for forward military installations and likely mineral rights as well, along with increased cooperation from European counterparts, and the U.S. is not on the hook for taking care of the 50,000 inhabitants of the island, nor purchasing the whole landmass. At the end of the day, this was classic Trump, demand more than you need, threaten overwhelming force, and then finally settle for all that you really needed anyway. Greenland is important to the United States for a variety of reasons, not the least of which is because some missile interceptor technologies rely on proximity to the enemy's launch locations to increase the likelihood of actually destroying incoming projectiles. That makes Greenland invaluable in combating Russia and no European powers have the money or the will to secure the island from an adversary like, say, China.

Also, recent geological surveys have indicated truly massive volumes of oil and natural gas, perhaps equivalent to America's entire volume of proven reserves. Then there's lithium and other important elements that are critical supply chain components to a 21st century economy. In short, Greenland is the next Seward's icebox. That was a pejorative given to the purchase of Alaska in 1867 after Secretary of State William Seward had negotiated the sale from the Russian Empire. The territory proved to not only be of strategic importance, but also a literal and figurative gold mine in terms of resources. The parallels between these two very northern lands are quite strong, but let's return for a minute to Japan because there's one more lesson to be learned here.

Japan is basically running ahead of the U.S. in terms of the life cycle of a debt. crisis. Although metrics like debt to GDP are comparing a stock to a flow and therefore aren't usually very informative, let's just consider for a moment that Japan's ratio of 230% is far worse than America's. It's the equivalent of $70 trillion of debt here in the U.S. At some point, the bond vigilantes will have had enough and they begin to say no. That's when yield spike and interest on the debt just goes to the moon. And just about everything else goes down. So it's good for the U.S. that Trump was able to bring the Greenland negotiations to where they are today with America getting what she needs without really having to shell out anything for the whole island.

The last thing we need is another big expense and expansion of the deficit. We've previously talked about how the Trump administration has accomplished a truly Herculian feat in reducing government's spending and government bureaucrats by record amounts last year. But there's only so much the executive alone can do. If we're going to continue protecting the Western Hemisphere and also avoid the fate of Japan, then Congress must step up and make real cuts to government spending. They can either do it now when it's relatively painless or the bond vigilantes will make them do it down the road and it'll be much more painful that way. Sure, the proceeds from oil and gas sales in places like Venezuela and Greenland can help the bottom line, but they can't entirely make up for the lack of financial

discipline in the halls of Congress. After all, asset acquisition alone couldn't save Rome, and it won't save us. I'm E.J. Antony for The Daily Signal. Subscribe to get the news. The legacy media won't tell you, and only the Daily Signal can bring to you.