Japan’s Foreign Securities Holdings Plunge Amid Record Yen Intervention Funding]

Japan’s holdings of foreign securities dropped sharply in May, indicating that the government likely tapped overseas assets, including U.S. Treasuries, to finance its record currency market intervention during the past month.

Foreign securities holdings fell by $75.6 billion from April, according to Finance Ministry reserve data released Friday. Total foreign reserves declined to $1.09 trillion at the end of May. Foreign currency deposits, another potential source for intervention funds, remained largely unchanged at $162 billion.

These figures follow confirmation that Japan’s intervention in foreign exchange markets reached a record ¥11.73 trillion ($73.4 billion) in the month through May 28. A source familiar with the matter confirmed that authorities purchased yen on April 30 after the dollar weakened to ¥160.72, with market participants suspecting additional operations in subsequent days.

The decline in 10-year Treasury prices from late April suggests some portion of the foreign securities drop reflects marked-to-market losses on Japanese Treasury holdings.

While Friday’s data did not provide a detailed breakdown of securities holdings, market participants estimate approximately 70% of Japan’s foreign reserves are invested in U.S. Treasuries. The Federal Reserve’s custody holdings of Treasuries also indicate Japan likely sold U.S. securities to fund its yen purchases.

Any Treasury sales connected to intervention could draw scrutiny in Washington, where officials have grown increasingly focused on stability in the U.S. government bond market.

Earlier this year, U.S. Treasury Secretary Scott Bessent warned Japanese counterparts that volatility in Japan’s bond market could spill over into Treasury markets, highlighting his sensitivity to large-scale selling by foreign investors.

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