Japan and China cut U.S. Treasury holdings amid currency pressure

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Japan and China cut U.S. Treasury holdings

Highlights

Japan reduced its Treasury holdings to $1.191 trillion.
China cut its portfolio to $652.3 billion, the lowest level since 2008.
Total foreign holdings of U.S. government debt fell to $9.348 trillion.

Asia sells part of its dollar assets

According to CNBC, foreign holders reduced their investments in U.S. Treasury securities in March to $9.348 trillion, down from $9.487 trillion a month earlier. Japan, the largest foreign holder of Treasuries, cut its portfolio from $1.239 trillion to $1.191 trillion, a decline of about $47.7 billion. China reduced its holdings from $693.3 billion to $652.3 billion, a drop of nearly 6% in one month.

The selling coincided with the start of the U.S.-Iran conflict and a rise in oil prices, which increased pressure on Asian currencies. For countries dependent on energy imports from the Persian Gulf, this meant higher import costs and a need to defend national currencies. Under such conditions, central banks may sell part of their dollar assets to fund currency interventions.

Not everyone is leaving Treasuries

The picture does not look like a broad, uniform exit from U.S. debt. The U.S. Treasury Department data reported that total net TIC inflows in March reached $150.7 billion, with foreign private investors accounting for $162.1 billion in inflows, while the official sector posted an outflow of $11.4 billion. Foreign residents also bought $96.5 billion in long-term U.S. securities, while official institutions sold $14.9 billion.

Against that backdrop, the United Kingdom increased its holdings from $897.3 billion to $926.9 billion. Belgium kept its position roughly unchanged at about $454 billion, while Luxembourg held $432 billion. These figures matter when assessing China’s exposure: the Treasury explicitly warns that securities held through foreign custodians may not reflect the actual ultimate owner.

Currency risk becomes the central factor

The March data show that Treasuries remain a key reserve asset, but central banks are managing liquidity more actively. Foreign official holders reduced their portfolios to $3.902 trillion, down from $4.010 trillion in February, while their holdings of Treasury bonds and notes fell from $3.557 trillion to $3.461 trillion.

For markets, this matters because rising Treasury yields, expensive oil and weaker currencies can reinforce one another. The stronger the pressure on the yen and other Asian currencies, the higher the chance of further sales of liquid dollar assets. April data, due to be released by the Treasury in June, will show whether the March selloff was a one-off response to the shock or the start of a more lasting reserve adjustment.

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