Japan and China Reduce U.S. Treasury Holdings by $52.3 Billion

Japan and China have reduced their holdings of U.S. Treasury securities by $52.3 billion in June alone. The decrease from these two countries accounts for 72.5% of the total decline in foreign holdings, which impacts U.S. long-term interest rates and dollar liquidity. According to the U.S. Treasury Department, foreign holdings of U.S. Treasury securities fell by $72.1 billion to $9.3 trillion compared to the previous month. Japan's holdings decreased by $26.4 billion to $1.12 trillion, while mainland China's fell by $25.9 billion to $633.4 billion. Japan remains the largest foreign holder, while China ranks third. This statistic indicates that the supply-demand issues in the U.S. Treasury market are linked to dollar liquidity. If Japan sells Treasuries to defend the yen, it could lead to a drop in Treasury prices and a rise in yields. The U.S. is exploring ways for foreign central banks to obtain dollars without selling Treasuries. Currently, there is a $60 billion limit under the FIMA facility, and discussions are underway to raise this limit. This increases the possibility for foreign central banks to secure short-term dollars without selling Treasuries. Whether the decline in holdings by Japan and China continues will be confirmed in future TIC statistics.

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