Japan likely sold U.S. Treasuries to fund record yen defense

Japan likely sold tens of billions of dollars in U.S. Treasury holdings to finance the largest single-month currency intervention on record, according to Finance Ministry reserve data released Monday.

Tokyo's holdings of foreign securities fell by $87.8 billion at the end of August from a month earlier, Bloomberg reported, a decline closely matching the scale of the government's recent yen-buying operations. The ministry had previously confirmed that authorities spent a record ¥15.4 trillion — roughly $98.6 billion — on intervention between July 30 and August 26, part of which was conducted jointly with the United States in the first coordinated U.S.-Japan currency operation since 2011.bloomberg+3

Reserves Drop Below $1 Trillion

Japan's total foreign currency reserves fell to roughly $995 billion at the end of August, according to the Japan Times, crossing below the $1 trillion threshold for the first time in recent memory. Total official reserve assets, which include gold and IMF positions, stood at $1.208 trillion, down a record $79.6 billion from the prior month, Reuters reported.japantimes+2

While the ministry's data does not break down which securities were sold, market participants estimate about 70% of Japan's foreign reserves are invested in U.S. Treasuries. The price of 10-year Treasuries was only slightly lower at the end of August compared to July, suggesting valuation changes accounted for a small portion of the decline — and that outright sales drove most of the drop.Reuters+2

Implications for Washington and Future Interventions

The sales underscore a tension in U.S.-Japan financial relations. Treasury Secretary Scott Bessent has focused on Treasury-market stability ahead of the midterm elections, recently announcing a doubling of government buybacks of longer-dated debt through November 4 to contain yields. Japan's willingness to sell Treasuries to defend the yen risks working at cross-purposes with those efforts.japantimes

Finance Minister Satsuki Katayama has suggested that future interventions could tap the Federal Reserve's Foreign and International Monetary Authorities Repo Facility, which allows Japan to borrow up to $60 billion per day against its Treasury holdings without selling them outright. That mechanism could ease pressure on U.S. bond markets while preserving Japan's intervention capacity. Cumulative yen-buying interventions in 2026 have now exceeded ¥27 trillion, surpassing all previous annual records.Crypto Briefing+2