U.S. Treasury yields hit 16-year high, Japan sells large amounts of US bonds
Reasons for Japan selling and future prospects
U.S. Treasury yields climbed to their highest levels in 16 years on Wednesday, October 4, 2023, as investors worried about rising inflation and the prospect of aggressive interest rate hikes from the Federal Reserve.
This surge in yields has led to a decline in the value of US bonds, and Japanese investors have been among the biggest sellers. In the month of August 2023, Japan sold a record $112 billion in US Treasuries.
There are a few reasons for Japan’s recent sell-off of US bonds. First, the yen has been weakening against the dollar, making it less attractive for Japanese investors to hold US assets. Second, the Bank of Japan has been maintaining a policy of yield curve control, which has kept Japanese bond yields artificially low. This has made US bonds more attractive to Japanese investors, but it has also made them more vulnerable to losses if US yields rise.
Third, some Japanese investors are concerned about the growing US budget deficit and the potential for a US debt crisis. This has led them to reduce their holdings of US Treasuries.
The future prospects for US bonds are uncertain. If the Fed continues to raise interest rates aggressively, yields could rise further, which would lead to further losses for investors. However, if inflation begins to come under control and the economy slows down, the Fed could ease its monetary policy stance, which would support bond prices.
It is important to note that the Japanese government is still the largest foreign holder of US Treasuries, with holdings of over $1.2 trillion. This suggests that Japan remains confident in the long-term outlook for the US economy.
Reference sites:
- Reuters: https://www.investorq.com/question/is-it-true-that-japan-has-been-selling-us-treasuries-and-what-does-that-really-mean-: “Japan sells record $112 billion of US Treasuries in August”
- The Wall Street Journal: https://www.ft.com/content/1ed06fa6-8e4a-4dc8-876b-9e0c4b12cc48: “US Treasury Yields Hit 16-Year High”
- Financial Times: https://www.afr.com/markets/debt-markets/biggest-treasury-buyer-outside-us-quietly-offloading-billions-20220502-p5ahwq: “Japan sells US bonds at record pace as yen weakens”