Japan slashes $67 billion in US Treasuries as China, UK add holdings

Japan cut its US Treasury holdings by the most in nearly a year, while China and the UK added to their positions in May, signaling divergent strategies among the largest foreign holders of American government debt.

Japan reduced its US Treasury holdings by $67 billion to $1.143 trillion in May, the largest monthly decline since June 2025, as the world's biggest foreign creditor potentially rebalanced portfolios ahead of yen intervention.

"The scale of Japan's reduction suggests the Ministry of Finance may have been liquidating Treasuries to raise dollar liquidity for potential yen-buying intervention," said James Okafor, macro strategist at Edgen. "A $67 billion swing in a single month is not routine portfolio rebalancing."

China increased its holdings by $8 billion to $659 billion, while the UK added $11 billion to reach $949 billion, according to Treasury International Capital data released Tuesday. The three countries together hold $2.751 trillion in US government debt, representing roughly a quarter of all foreign-owned Treasuries. Japan's reduction alone accounted for nearly 2.5 percent of the $2.7 trillion in net foreign inflows into US long-term securities during the month.

The divergence matters for the $28 trillion Treasury market because Japan's selling could push long-end yields higher at a time when the Federal Reserve is weighing rate cuts. If Tokyo continues to reduce holdings to fund yen defense, the 10-year yield — already at 4.35 percent — could face additional upward pressure. The next TIC data release in August will show whether May was a one-off adjustment or the start of a sustained trend.

The data comes as the yen traded near 155 per dollar in May, prompting speculation that Japanese authorities were preparing to intervene in currency markets. Japan spent a record $62 billion on yen intervention in April, and the Treasury reduction in May suggests the Ministry of Finance may have continued to build a dollar war chest. The last time Japan reduced its Treasury holdings by a comparable magnitude was in June 2025, when a $72 billion decline preceded a period of yen weakness that pushed USD-JPY above 160. The 10-year US Treasury yield rose 18 basis points in the month following that reduction.

For China, the modest $8 billion increase marks a continuation of its recent pattern of incremental buying after a prolonged reduction that saw its holdings fall from a peak of $1.32 trillion in 2013. Beijing has been gradually diversifying its reserve assets, but the May data shows it remains a net buyer of US government debt at the margin. The UK's $11 billion increase to $949 billion keeps it as the third-largest foreign holder, a position it has held since overtaking Ireland in 2023. British holdings have grown by roughly $150 billion over the past two years, reflecting strong demand from UK pension funds and asset managers for US duration.

The TIC data also showed net foreign purchases of US long-term securities totaled $267 billion in May, down from $312 billion in April. Foreign private investors accounted for $189 billion of the inflows, while official institutions — including central banks and sovereign wealth funds — added $78 billion. The overall decline in foreign buying from April suggests that Japan's reduction was not fully offset by increased demand from other sources, a dynamic that could keep upward pressure on Treasury yields in the near term.

This article is for informational purposes only and does not constitute investment advice.