First increase in four months! Japan, the top "creditor" of the United States, increased its holdings of US Treasury bonds in August, while China's holdings approached the lowest level since 2009

In August this year, Federal Reserve Chairman Powell sent a comprehensive dovish signal through his speech at the Jackson Hole Symposium, causing US bond prices to rise further due to expectations of an interest rate cut. Official US data shows that in August, the actions of the two major "creditors" in the US diverged, with Japan, which had been supporting the pressure on its own currency, increasing its holdings, while China continued to reduce its holdings.

On Thursday, October 17th, US Eastern Time, the US Department of the Treasury released the Treasury International Capital (TIC) report for August, showing that Japan's holdings of US Treasury bonds increased by $13.5 billion compared to July, reaching $1.1292 trillion, rebounding after hitting a new low since October last year for two consecutive months. With this, Japan's holdings of US Treasuries reversed a four-month decline trend, after reducing holdings by a total of $73.8 billion in the previous four months. Since surpassing China in June 2019, Japan has been the largest foreign holder of US Treasury bonds.

The TIC report shows that in August, Mainland China's holdings of US Treasuries decreased by $1.9 billion compared to the previous month, with total holdings at $774.6 billion. After rebounding to a five-month high in June, holdings decreased for two consecutive months, approaching the low point since March 2009. Since April 2022, China's holdings of US Treasuries have remained below $1 trillion. As of August this year, China remains the second largest holder of US Treasuries after Japan. In the first 8 months of this year, holdings decreased for a total of six months, with only increases in holdings in April and June.

The TIC report also shows that among the top ten regions/countries holding US Treasuries listed in the report, only Mainland China and Canada saw decreases in holdings in August. Canada, ranked sixth in total holdings, reduced holdings by $12.3 billion. The "paradise" for hedge funds, the Cayman Islands, increased holdings by $41.4 billion in August, far exceeding other regions for the second consecutive month, moving up from fourth place in July to fifth. France, ranked ninth in total holdings, had the second largest increase of $21.3 billion, while the United Kingdom, ranked third in total holdings, increased holdings by $15.6 billion, slightly more than Japan.

华尔街见闻 previously mentioned that the recent changes in Japan's holdings of US Treasuries have been seen as adjustments under the pressure of intervening in the foreign exchange market. Data from the Bank of Japan's accounts shows that the Japanese government may have spent approximately ¥9 trillion in total to support the yen in the week ending May 3, and may have injected approximately ¥5.6 trillion on July 11 and 12. Media reports cited data indicating that Japan intervened in the foreign exchange market with $36.6 billion in July. Such interventions to stabilize the yen exchange rate require Japan to have sufficient "ammunition," hence the need to sell US dollar assets, including US Treasuries, for funding.

However, in August, the Japanese Yen saw a strong rebound against the US dollar, rising by over 2% for the month. The Japanese government did not have the need to support the yen temporarily, indicating a loss of a major incentive to sell US Treasuries.

In June this year, China's holdings of US Treasuries unexpectedly increased by $11.9 billion, marking the largest increase in holdings in half a year. However, industry insiders believe that this was mainly due to the hawkish signal released by the Fed meeting slashing interest rate expectations that month Created an opportunity to bottom out US Treasuries. The brief increase in holdings in June did not affect the long-term trend of Chinese holdings of US Treasuries. Given the changing Sino-US relations and the trend of diversification in foreign reserve asset allocation, China's holdings of US Treasuries may continue to decline steadily. Most investment institutions believe that the future fluctuations in China's holdings are still largely influenced by Sino-US relations.

In recent years, China's reduction of US Treasuries is more driven by the need for diversified allocation of foreign reserve assets. Increasing the proportion of gold allocation is a manifestation of promoting diversified allocation. As of April this year, the People's Bank of China set a record by increasing its gold holdings for 18 consecutive months, before temporarily halting.

The State Administration of Foreign Exchange of China announced last month that as of the end of August, foreign exchange reserves stood at $3.288215 trillion, an increase of $31.843 billion from the end of July, a month-on-month increase of 0.98%. This marks the sixth consecutive month-on-month increase in seven months, with foreign reserves stabilizing above the $3.2 trillion mark for eight consecutive months. The State Administration of Foreign Exchange reiterated that the size of foreign reserves is affected by factors such as exchange rate conversion and changes in asset prices, pointing out that the US dollar index fell in August, while global financial asset prices continued to rise overall.

At the same time, data from the State Administration of Foreign Exchange shows that China's gold reserves remained unchanged in August from April, indicating that the People's Bank of China has not made further purchases for four consecutive months.

Earlier this month, the World Gold Council (WGC) stated that global central bank gold demand slowed in August 2024, with net purchases of gold totaling around 8 tons. Overall central bank gold demand has declined from the peak earlier this year but still maintains a positive growth trend.

The WGC believes that the performance of gold prices is not the primary strategic driver for global central bank gold purchases, but the trend of rising gold prices may affect central bank purchases. It is worth noting that the amount of gold sold by global central banks has not increased, which may indicate a potential wait-and-see attitude by central banks rather than a change in trend. The WGC remains optimistic about central bank gold demand for the remaining time this year, although total demand for the year is expected to be lower than last year