Recently, Japan has been reducing its holdings of U.S. Treasuries, reflecting a significant shift in funding approach. As of April 2024, Japan’s holdings of U.S. Treasuries fell to their lowest level since January 2020, decreasing by 18.5% year-over-year to $1.082 trillion. This trend is driven by rising yields on Japanese government securities, making domestic investments more attractive, and increasing hedging costs for foreign investors due to the Federal Reserve’s rate hikes. The economic organization of Japan’s relaxation of yield curve control has further encouraged this repatriation of capital.
The Federal Reserve’s rate hikes increase hedging costs for foreign investors, making U.S. Treasuries less attractive. Concerns over the U.S. economic outlook and debt levels can prompt Japanese investors to seek safer or more profitable alternatives. Moreover, the US Federal Reserve’s efforts to manage inflation by unwinding its debt holdings affect global funding strategies.
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