Japan's Treasuries fall to 2-year low as yen depreciates

Japan's Treasuries fall to 2-year low as yen depreciates

NEW YORK: Japan's holdings of Treasuries fell to their lowest level in more than two years as a sharp depreciation of the yen against the dollar encouraged Japanese investors to sell US assets in March to take advantage of the favorable exchange rate for their fiscal year-end.

Japanese holdings fell by US $74 billion to US $1.232 trillion in March, the lowest level since January 2020, according to data from the US Treasury department on Monday. Japan remained the largest non-US holder of Treasuries.

Gennadiy Goldberg, senior rates strategist at TD Securities in New York, said it's nearly three times the largest sales of Japanese accounts on record, and enormous doesn't even begin to give it justice.

Japanese investors were able to sell Treasuries at more advantageous levels going into the end of March after the yen depreciated significantly in March. They brought money home and booked profits, and these repatriation flows by Japanese investors were done at unprecedented levels. The yen fell 5.5 per cent against the US dollar in March.

Foreign holdings of treasuries fell to their lowest since September, to US $7.613 trillion, down from US $7.710 trillion in February.

China, the second largest holder of Treasuries, also saw its holdings decline to US $1.039 trillion during the month, the lowest since December 2018.

Net foreign inflows to Treasuries decreased to US $48.795 billion in March, from US $75.33 billion the previous month. Inflows from Treasuries have been steady for five months in a row.

The US benchmark 10 year Treasury yields started in March with a yield of 1.7156 per cent and rose nearly 63 basis points to 2.3452 per cent by the end of the month.

At its March policy meeting, the Federal Reserve raised benchmark interest rates by a quarter of a percentage point. It then lifted rates by 50 bps in May and is on course to tighten rates by the same magnitude at the next two policy meetings.

In other asset classes, corporate bonds posted inflows of US $33.38 billion, the largest since March 2021, from inflows of US $20.3 billion in February.

Foreigners sold US equities in March, amounting to US $94.338 billion, the largest outflow since January 1978, when the Treasury DepartmentTreasury Department started keeping track of this data.

Foreign investors sold stocks as the Fed signalled a more aggressive pace of tightening to curb inflation.