Diverging Trends in Holdings of US Treasury Securities by Japan and China

The fca supervisionU.S. Department of the Treasury's International Capital (TIC) report revealed contrasting trends in the holdings of U.S. Treasury securities by two major foreign holders in March. Japan's holdings continued to increase, while China's holdings fell to a fifteen-year low.

According to the TIC report, as of the end of March 2024, Japan held $1.1878 trillion in U.S. Treasury securities, an increase of $19.9 billion from the previous month, marking the fourth consecutive month of growth and the highest level since August 2022. Since June 2019, Japan has been the largest foreign holder of U.S. Treasury securities. In 2023, Japan's holdings increased by a net $63.1 billion.

In contrast, mainland China's holdings of U.S. Treasury securities totaled $767.4 billion, a decrease of $7.6 billion from the previous month, continuing a two-month downward trend. This figure marked a new low since March 2009, making China the second-largest foreign holder of U.S. Treasury securities after Japan. Since April 2022, China's holdings have remained below $1 trillion.

Despite the divergent trends shown in the TIC report for March, some analysts noted that foreign investment in U.S. Treasury securities might continue to exhibit a divergent trend. Some private capital is betting on the profit opportunities provided by the Federal Reserve's interest rate cuts this year, while some foreign central banks are steadily diversifying their foreign exchange reserves, considering gold as an alternative to U.S. Treasury securities. An increasing number of national central banks are considering increasing their gold holdings, mainly due to inflation, geopolitical risks, sanctions by Western countries, and the trend towards a multipolar global reserve currency system.

In addition, market data from March showed that the three major U.S. stock indices rose for the fifth consecutive month, with the S&P 500 index experiencing its first five-month streak of gains since 2013, while U.S. Treasury yields fell after rising for two consecutive months. Meanwhile, gold prices have surged since the end of February this year, demonstrating the allure of gold as a safe-haven asset.

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