China and Japan Ditch US Treasuries in Historic Sell-Off

China and Japan are both aggressively cutting back on their holdings of US Treasuries, with Japan leading the way in Q3 2024 by selling a record $61.9 billion.

This follows a significant $40.5 billion reduction in Q2. In the same period, China offloaded $51.3 billion in US debt, marking its second-largest reduction ever. As a result, China’s total Treasury holdings have fallen below $800 billion, a level not seen in 16 years.

This dramatic pullback by two of the largest foreign holders of US debt raises questions about their shifting priorities and the future of the US Treasury market.

China’s sell-off is largely driven by its strategy to stabilize the yuan amid heightened trade tensions, particularly with the US. The People’s Bank of China (PBOC) has been focused on maintaining a stronger yuan to counter market pressures, including the threat of tariffs.

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Japan’s move, on the other hand, is more related to domestic economic needs. The Japanese government is funding a ¥39 trillion stimulus package aimed at supporting households and businesses, which has led to the country scaling back its investments in US debt.

With both countries reducing their Treasury holdings, global financial markets are now grappling with the potential implications of these significant changes.