Official U.S. data reveals that foreign investors' holdings of American government debt fell to their lowest level in nine months during July, a period that coincided with Japan's currency market intervention aimed at supporting the yen.

According to the Treasury International Capital (TIC) report released by the U.S. Treasury Department on Wednesday, September 16th, overseas holdings of U.S. Treasuries declined for a second straight month in July. The total decreased by $50.4 billion month-over-month to $9.25 trillion, marking the lowest level since October 2025.

The TIC data indicates that reduced positions from France and Canada were the primary drivers behind the overall dip in foreign holdings for July, while Japan and mainland China also continued to trim their stakes. Concurrently, Japan coordinated a currency intervention with the U.S. in late July, purchasing yen, which has reignited market focus on whether Tokyo's use of its foreign exchange reserves to support its currency might further influence its Treasury allocations and add additional pressure to the U.S. bond market.

Japan's Treasury Holdings Drop For Three Months, Hitting A New One-Year Low

The TIC report shows Japan's U.S. Treasury holdings decreased by $12.8 billion in July, settling at $1.1039 trillion. This marked the second consecutive month of declines and the lowest level since January 2025, although Japan remains the largest foreign holder overall. As of July, Japan's Treasury positions had fallen for three straight months.

Japan is the biggest overseas creditor of the U.S., and the link between its reserve allocation and the Treasury market has long been a point of focus. In recent months, the timeline of Japan's selling aligns with its currency market interventions.

Data from Japan's Ministry of Finance released on May 29th showed that total currency intervention between April 28th and May 27th reached ¥11.73 trillion. Analysts suggest that such yen-buying operations likely involve a certain scale of U.S. Treasury sales.

On August 3rd, the Japanese Ministry of Finance confirmed that the government, in coordination with the U.S. Treasury Department, executed a yen-buying intervention on July 31st to curb excessive volatility in the exchange rate. This was the first joint intervention by the two nations since the 2011 Great East Japan Earthquake and an exceptionally rare coordinated action outside of crisis periods.

Data released on August 29th indicated that Japan spent approximately ¥15.4 trillion on currency intervention between July 30th and August 26th, setting a record high for such operations.

Intervention requires selling foreign currencies and buying yen. Given that Japanese reserves are heavily weighted toward U.S. Treasuries, the market is watching whether Japan will fund its actions by selling these dollar-denominated assets.

However, it's important to note that the TIC report reflects changes in holdings balances, which include both actual transactions and valuation shifts. Therefore, it is impossible to confirm the exact amount of Treasuries sold for intervention purposes based solely on this data.

China Continues To Trim While Britain Adds $58.4 Billion To A Record High

According to the TIC report, apart from Japan, another major U.S. creditor, China, also continued to reduce its stake in July.

Mainland China's holdings fell by $15.4 billion month-over-month to $618 billion, the lowest level since 2008 and an eighteen-year trough. This represents a second consecutive monthly decline and the ninth decrease in the last eleven months, with the total position remaining in third place.

In contrast, the U.S.'s second-largest overseas creditor, the United Kingdom, moved in the opposite direction. Britain's holdings increased by $58.4 billion in July to $998.3 billion, surpassing the previous peak set in May. Since overtaking China for the first time in over two decades in March 2025, the UK has consistently held the number two position. After a dip in June, July's rise marked the sixth increase in the last seven months.

Among the top ten foreign holders listed in the TIC report, only three increased their positions in July: the UK, Luxembourg, and the Cayman Islands. The UK saw the largest gain, while the latter two added $7.9 billion and $7 billion respectively. The biggest decliners were France, ranked ninth, and Canada, ranked seventh, with reductions of $41.5 billion and $33.3 billion.

Belgium, ranked fourth overall, saw its holdings decrease by $11.8 billion in July to $470.7 billion. Market analysts note that Belgium's figures may include custody accounts for other nations, such as China, so its changes should not be entirely interpreted as investor activity from Belgium itself.

Overall, the July drop in overseas holdings was not solely attributed to Japan. Reduced positions from countries like France and Canada, along with bond price fluctuations, all contributed to the overall decline.

Foreign Holdings Retreat Continues Amidst Focus On Inflation And Fiscal Deficit

From a broader perspective, the scale of foreign-held U.S. debt has fallen from its highs earlier this year.

The June TIC report showed foreign holdings had decreased by $72.1 billion month-over-month to approximately $9.3 trillion, representing the largest monthly drop since March. In May, overseas positions had reached around $9.37 trillion, narrowly missing the record high of roughly $9.49 trillion set in February.

July saw a further reduction of $50.4 billion to $9.25 trillion, moving further away from the levels seen at the start of the year.

Bloomberg notes that the Bloomberg U.S. Treasury Index fell by more than 1% in July. During that period, investors were concerned about inflation risks stemming from heightened tensions with Iran, while also continuing to monitor the U.S. fiscal deficit.

A decline in foreign investor holdings may signal pressure on Treasury demand, but the balance figures do not directly reflect net selling. Especially during periods of falling bond prices, the market value of holdings can shrink even without significant selling activity.

For the U.S. Treasury market, the potential asset sales from Japan's intervention are intertwined with the fiscal deficit, inflation worries, and shifting overseas demand. Key factors to watch moving forward include whether Japan's Treasury holdings continue to decline, how future interventions will be financed, and whether other major foreign holders will persistently alter their allocations.