🚨Japan is likely SELLING US Treasuries to defend the yen:
Federal Reserve custody holdings of US Treasuries fell by -$8.7 billion to $2.73 trillion in the week ending May 6.
This is consistent with Japan selling US government debt to fund an estimated $54.7 billion in yen purchases over the same period, according to Bloomberg.
Since 2022, Japan has spent more than $200 billion in total defending the yen, selling US Treasuries each time to raise the dollars needed for intervention.
Importantly, Japan is the largest foreign holder of US government debt, and continued Treasury sales could put further upward pressure on US yields at a time when they are already rising due to surging oil prices and growing fiscal deficit concerns.
In past interventions, Japan did not draw down its cash reserves, according to Bank of America, implying the funding likely came entirely from bond sales.
If the same pattern held this time, the total impact on US Treasury supply from this intervention would be around $70 billion, further lifting yields.
Japanese interventions are adding pressure to the Treasury market.