Japan dumps foreign securities including US Treasuries to defend the yen

Japan just pulled off one of the most expensive currency defenses in modern history, and the bill came due in the form of a record selloff of foreign securities, including a significant chunk of US Treasuries.

The Ministry of Finance sold ¥11.73 trillion ($73.4 billion) worth of foreign assets to fund yen-buying interventions through late May.

The numbers behind the fire sale

Japan’s foreign securities holdings dropped $75.6 billion in May alone, the largest single-month decline on record for the country. Total foreign reserves fell $77.1 billion, or 5.6%, landing at $1.306 trillion. Foreign securities within that portfolio slipped to $931.7 billion.

Japan remains the single largest foreign holder of US Treasuries, with estimated holdings somewhere between $1.1 trillion and $1.24 trillion. Analysts peg roughly 70% of Japan’s reserves as sitting in US government debt, which means any aggressive selling by Tokyo has the potential to ripple through the world’s most important bond market.

The yen had been sliding toward 40-year lows against the dollar, forcing Japanese authorities into action.

A coordinated effort with Washington

In late July and early August, Tokyo and Washington conducted their first coordinated yen-buying intervention since 2011. Before that, you’d have to go back to the late 1990s to find a comparable joint operation.

To navigate this tension, Japanese authorities turned to the Federal Reserve’s FIMA repo facility, which allows foreign central banks to pledge Treasury collateral in exchange for dollars without actually selling bonds on the open market. This mechanism let Japan access the liquidity it needed while avoiding the worst-case scenario for US bond markets.

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