Japan Enters the U.S. Bonds ‘Dumping’ Bandwagon by selling $63 Billion
As a countermeasure US adds Japan on their FX "Currency Watch List"
Japan Now on US FX Watchlist
The United States has added Japan to its currency watchlist amid concerns over the impact of a strong dollar on trade partners. This move reflects growing tensions as the robust U.S. dollar places strain on other economies, potentially affecting global trade dynamics.
The inclusion of Japan on the watchlist indicates heightened scrutiny of its currency practices, which the U.S. monitors to ensure fair trade and prevent competitive devaluation. This development underscores the broader economic challenges posed by significant currency fluctuations in the international market
Japan Dumps $63 Billion Worth U.S. Bonds
Japan has recently sold off $63 billion worth of U.S. and European sovereign bonds as of March 2024, following a trend set by the BRICS alliance. This significant divestment represents approximately one-sixth of the Bank of Japan's portfolio and is aimed at mitigating losses incurred from unfavorable interest rate bets.
The Bank of Japan now anticipates a net loss of 1.5 trillion yen (about $9.49 billion) for the current fiscal year, tripling its previous estimate of 500 billion yen. This financial pressure is compounded by the yen's depreciation to a 34-year low against the U.S. dollar.Kazuto Oku, CEO of Japan's Norinchukin Bank, confirmed that the bank will reduce interest-rate risk bets to protect its interests amid the country's financial turmoil. The funds from the bond sales will be diversified into corporate assets rather than reinvested in U.S. and European sovereign bonds.
This move mirrors actions taken by BRICS member China, which has offloaded nearly $73 billion in U.S. bonds. Japan's decision to sell these bonds was driven by misjudgments about the duration of elevated interest rates and the impact of rising foreign-currency funding costs, which eroded returns from U.S. bonds purchased when yields were lower.
The shift in Japan's investment strategy reflects growing concerns about the U.S. economy and mounting debt, which some experts argue has pushed the country into a recession. As the U.S. national debt surpasses $34.75 trillion, the percentage of U.S. treasuries held by foreign entities has declined from 34% a decade ago to approximately 23% today