Peter Schiff Says Japan Could Be the Pin That Pricks the Bigger US Bubble

Speaking on The Peter Schiff Show Podcast, the economist and longtime Bitcoin critic said the AI trade cracked open this week even as broader indexes held up. Alphabet fell 10% after the company announced higher capital spending than investors expected. Oracle dropped nearly 8% on the week and is now down 41% for the year. Meta fell 7.3%, Amazon lost 6.8%, and Microsoft slipped 2.7%, pushing its year to date decline to 19.3%, close to bear market territory.

Schiff said the market’s reaction marks a shift from prior quarters, when hyperscalers announcing bigger artificial intelligence (AI) budgets typically saw their share prices climb. “Investors are now finally starting to question whether or not these investments are in fact going to pay off,” he said.

SpaceX and Tesla Take the Brunt

SpaceX shares dropped another 7.7% during the week and now trade 49% below the stock’s post IPO high. The company’s public float is set to expand from 5% to 40% of shares by the end of the year, a change Schiff explained could add further pressure on the stock.

Tesla fell 18% over the same stretch and sits 35% below its 52 week high. Together, the declines in Tesla and SpaceX cost Elon Musk close to $100 billion in a single week, according to Schiff’s estimates.

A Dot-Com Comparison

The gold proponent and economist compared the roughly three-quarters of a trillion dollars in annual AI capital spending to the buildout that preceded the dot-com crash. He said many of the early internet favorites that investors poured money into eventually went bankrupt without ever recovering their spending. He does not doubt the long term potential of AI, but argued markets are overestimating near term returns on hyperscaler investment.

Japan’s Bond Market Under Strain

Schiff pointed to Japan as a bigger and more immediate risk than the AI selloff. The yen fell to its lowest level against the dollar in 40 years. Japan’s 30-year government bond yield closed near 4%, a record for that maturity, while the 10-year JGB yield climbed to levels last seen in 1996.

Japan’s public debt exceeds 200% of gross domestic product, and the country’s benchmark policy rate remains at just 1%. Schiff said the Bank of Japan faces a choice between raising rates aggressively, which could trigger a domestic recession and a wave of repatriated capital, or staying passive and risking a currency collapse. Either path, Schiff stressed, has consequences for the United States.

Japan holds more than $1.1 trillion in U.S. Treasuries, the largest foreign holding of any nation. Schiff said a Japanese debt crisis could force large-scale selling of that position. “It may be the pin that pricks our bubble,” he said of Japan’s situation relative to the U.S. economy. Schiff added:

“The Japanese bubble popping ends up pricking the even bigger U.S. bubble.”

U.S. Treasury Yields Hit Multi-Decade Highs

The 30 year U.S. Treasury yield closed the week at 5.16%, the highest level since 2006, while national debt has surpassed $39.6 trillion. Schiff noted the government is carrying more than four times the debt it held in 2006, making today’s borrowing costs harder to absorb than the last time yields were this high.

Oil, Gold, and Inflation Pressure

Oil prices climbed above $100 a barrel and are up roughly 30% in July alone, driven by tensions tied to Iran. Schiff said the increase all but guarantees a hotter Consumer Price Index reading when July data is released in August.

Gold rose about 1% on the week despite the jump in bond yields and oil prices, a combination Schiff called notable given gold’s recent inverse relationship with oil since the Iran conflict began. Mining stocks outperformed the metal, with the GDX index up 5.6% and the GDXJ up 5.8%, a move Schiff read as a possible signal that a bottom is forming in the sector.

Labor Market and Trump’s Tariffs

Schiff also challenged the Trump administration’s framing of a recent drop in weekly jobless claims to 187,000, arguing the growth of gig work and weak hiring trends make the metric far less meaningful than in past decades. Separately, he criticized new tariffs imposed on roughly 60 countries under a provision of the Trade Act of 1974 aimed at goods linked to forced labor, calling the policy an unconstitutional tax that ultimately falls on American consumers rather than foreign governments.