Make my sushi order a double. The latest figures from the Treasury Department for December show that Japan is now the largest holder of US government debt. China slipped to the number two position after unloading $34.2 billion in paper in December, paring its holdings to a mere $755.4 billion. This is an ominous development for several reasons. Japan has the world’s worst demographic outlook, with the number or retirees skyrocketing relative to the number of wage earners. Soon the country will have to start drawing down its substantial savings to offset falling contributions from a shrinking workforce. Today’s firm hands will become tomorrow’s loose ones, as Japan inevitably flips from a buyer to a seller of American debt. Chinese liquidation of its holdings also does not bode well for future sales, and could become the lead up to our first failed Treasury auction. I have been warning about such a possibility for months now, and see it as the triggering event for a cataclysmic collapse of the bond market, and the spike up in yields. If this comes to pass, you can kiss that recovery goodbye. Keep trading the (NYSEARCA:TBF) and the (NYSEARCA:TBT) from the long side, and explore some outright shorts in the 30 bond futures contract.