Two major American "creditors" diverge again: Japan's holdings of US Treasuries fell for the first time in seven months, while China's bond holdings hit a 15-year low

On Tuesday, June 18, the U.S. Department of the Treasury released the Treasury International Capital (TIC) report, showing that in April this year, Japan remained the largest foreign holder of U.S. Treasury bonds. However, its holdings decreased by $37.5 billion to $1.2 trillion, ending a six-month streak of increases.

In March, Japan had increased its holdings of U.S. bonds by $19.9 billion to nearly $1.19 trillion, marking the fourth consecutive month of reaching a new high since August 2022 when the Japanese government intervened in the foreign exchange market.

Some analysts suggest that after Japan ended negative interest rates in March and the yen continued to weaken, there may have been intervention in the foreign exchange market and selling of U.S. bonds at the end of April. In March, the Federal Reserve maintained expectations of three interest rate cuts within the year, causing U.S. bond prices to rebound.

Mainland China remains the second largest foreign holder of U.S. bonds, with holdings increasing by $3.3 billion to $771 billion in April, ending a three-month streak of declines and reaching the highest level in fifteen years since March 2009.

In April, economic data showed that U.S. inflation remained high, reducing the possibility of a short-term interest rate cut by the Federal Reserve. U.S. bond yields briefly touched the highest level in five months, driving the U.S. dollar index higher.

The latest TIC data shows that among the top ten countries and regions with the highest holdings of U.S. bonds, only four increased their holdings in April. The Cayman Islands, ranking sixth in total holdings and representing hedge fund interests, increased their holdings by $16.5 billion, the largest increase. Japan had the largest reduction in U.S. bond holdings, followed by Canada in fifth place with a reduction of $24.7 billion.

Belgium, ranking seventh in total holdings, reduced its U.S. bond holdings by $4.7 billion to $312 billion. Outside the top ten "creditors" list, Saudi Arabia, ranking 17th in total holdings, reduced its U.S. bond holdings by $0.5 billion to $135.4 billion in April.

The data also shows that the net capital inflow of long-term investment portfolio securities in the U.S. was $123.1 billion in April, higher than the previous value of $100.5 billion in March. The net inflow of international capital cross-border investments in April was $66.2 billion, significantly lower than the previous value of $102.1 billion, with foreign private funds having a net inflow of $44.2 billion and foreign official funds having a net inflow of $22 billion.

According to a summary by Wall Street News, since surpassing China in June 2019, Japan has consistently been the largest foreign holder of U.S. Treasury bonds. In 2023, Japan only saw decreases in holdings in February, May, and September, with a net increase of $63.1 billion for the full year. As of March this year, Japan had increased its holdings for six consecutive months and for the ninth month in the last ten months Since April 2022, China's holdings of US Treasury bonds have been consistently below $1 trillion. In 2023, China's net holdings of US Treasury bonds decreased by $50.8 billion for the year. Throughout the year, there were only increases in March, November, and December, with decreases in the remaining nine months, except for April and October, where the reduction exceeded $10 billion in other months.

China's foreign exchange reserves at the end of April fell by $44.8 billion to $3.2008 trillion, a decrease of 1.38% compared to the previous month. The State Administration of Foreign Exchange stated that in that month, influenced by macroeconomic data of major economies, expectations of monetary policies, among other factors, the US dollar index rose, leading to an overall decline in global financial asset prices. The combined effects of exchange rate conversions and changes in asset prices resulted in a decrease in the size of foreign exchange reserves for that month.

While foreign exchange reserves were declining, the People's Bank of China continued to increase its gold holdings for the 18th consecutive month, with a slight increase in gold reserves to 72.8 million ounces in April. According to the World Gold Council, global central banks increased their gold reserves by 290 tons in the first quarter of this year, continuing to demonstrate a strong buying trend. Amidst market volatility, the central banks of Turkey, China, and India are "leading" in gold purchases globally.

The US Treasury International Capital (TIC) report is released monthly by the US Department of the Treasury, providing data on international capital flows, including trends in foreign purchases and sales of US Treasury bonds, government bonds, corporate bonds, and company stocks, to measure foreign demand for US debt and assets