Japan’s holdings of foreign securities fell sharply in May, a sign that the government may have tapped overseas assets, including U.S. Treasurys, to finance its record currency market intervention over the past month.
Foreign securities holdings dropped by $75.6 billion from April, according to Finance Ministry reserve data released Friday. Total foreign reserves fell to $1.09 trillion at the end of May. Foreign currency deposits, another potential source of funds for intervention, were largely unchanged, at $162 billion.
The figures came after confirmation that Japan’s intervention in foreign exchange markets hit a record ¥11.73 trillion ($73.4 billion) in the month through May 28. A person familiar with the issue confirmed that authorities bought yen on April 30 after the currency weakened to ¥160.72 per dollar, while market participants suspect further operations followed in subsequent days.
The price of 10-year Treasurys fell from the end of April, suggesting that a small portion of the fall in the foreign securities will likely be linked to a fall in the valuation of the Treasury holdings.
While Friday’s data do not provide a detailed breakdown of securities holdings, market participants estimate that roughly 70% of Japan’s foreign reserves are invested in U.S. Treasurys. The Federal Reserve’s custody holdings of Treasurys also showed that Japan likely offloaded U.S. securities to fund its recent yen purchases.
Any Treasury sales linked to intervention could attract attention in Washington, where officials have become increasingly focused on the stability of the U.S. government bond market.
Earlier this year, U.S. Treasury Secretary Scott Bessent warned Japanese counterparts that volatility in Japan’s bond market could spill over into Treasurys, underscoring his sensitivity to large-scale selling by foreign holders.
AloJapan.com