Did Japan Sell US Treasuries to Defend the Yen? Foreign Securities Holdings Plunge $87.8 Billion

Japan may have sold part of its foreign securities holdings, including US Treasuries, to finance the largest foreign-exchange intervention on record aimed at defending the yen.

Bloomberg reported on September 6 that data released the same day by Japan’s Ministry of Finance showed foreign securities holdings fell by $87.8 billion at the end of August from a month earlier. The decline was roughly in line with the amount Japanese authorities recently spent to buy yen.

The ministry had previously said it poured $96.4 billion into the foreign-exchange market in the month through August 26 to boost the yen, the largest monthly intervention on record. Part of the intervention was conducted jointly with the US.

The ministry’s data did not disclose the types of foreign securities sold or provide details by maturity. Still, market estimates suggest about 70% of Japan’s foreign-exchange reserves are invested in US Treasuries, fueling speculation that Tokyo sold some of those holdings to raise funds for the intervention.

Valuation losses are not seen as a major factor behind the drop. The price of the 10-year US Treasury at the end of August was only slightly lower than at the end of July, suggesting market moves accounted for only a limited portion of the $87.8 billion decline in foreign securities holdings.