Japan has been one of the world’s biggest buyers of U.S. Treasurys for years, helping to hold down borrowing costs for American businesses and consumers. Now that is changing.
Signs are mounting that Japan’s government is selling short-term U.S. bonds, part of an effort to prop up its currency. At the same time, some Japanese institutional investors are racing to reduce their foreign bondholdings, including Treasurys.
So far, the government likely hasn’t sold enough to have a major impact on bond prices. Still, investors worry that it will have to continue selling just to keep the yen stable around a three-decade low against the dollar. That has fed a fear that it could eventually turn to longer-term Treasurys if it runs low on shorter-term bonds.
One problem is that the weakness of the yen is being driven by a wide gap between U.S. and Japanese interest-rate policy that is almost certain to only get wider in the coming months.