Foreign investors reduced their holdings of US Treasury securities in June, with both Japan and China recording significant cuts that have reignited concerns about demand prospects for American debt.

According to data released by the US Treasury Department on Monday, total foreign holdings of US Treasuries fell by $72.1 billion month-over-month, bringing the aggregate figure down to $9.3 trillion. Since reaching an all-time high in February, foreign positions have now declined in three of the past four months.

Japan, the largest overseas holder of US Treasuries, trimmed its position by approximately $26.4 billion in June, reducing holdings to $1.12 trillion — the largest reduction among all nations. China followed closely behind, cutting its stake by $25.9 billion to $633.4 billion. The United Kingdom held $939.9 billion, down $8.7 billion from the previous month.

Notably, US Treasury Secretary Bessent announced in late July an unusually rare coordinated intervention in foreign exchange markets. According to market analysts, one of the key considerations behind this move was to prevent Japan from dumping US Treasuries on a massive scale to support the yen, which would have driven up American borrowing costs.

Paresh Upadhyaya, a strategist at Pioneer Investments, said the likelihood of Japan further reducing its Treasury holdings has fallen significantly following US participation in the intervention.

US debt under pressure as foreign holdings decline

US Treasury prices have remained under sustained pressure throughout this year. Investor concerns over persistently elevated fiscal deficits and inflation running above target levels have fostered a cautious market sentiment, with US debt accumulating losses over the period.

It is worth noting that the foreign holdings data published by the Treasury Department encompasses both valuation changes and actual buy-sell transactions, meaning a decline in holdings does not necessarily equate to net selling activity.

The direct backdrop to Japan's reduction of US Treasuries is the continued weakness of the yen. In recent months, the Japanese currency has depreciated sharply, forcing Tokyo authorities to intervene in the market multiple times to stabilize the exchange rate, which in turn has caused fluctuations in its US Treasury holdings.

In late July, Treasury Secretary Bessent announced US participation in the intervention — an extremely rare move in recent years. Some market observers have pointed out that Washington's decision was driven, in part, by concerns that Japan might be forced to sell US Treasuries to raise dollar funds. Should such a scenario materialize, US borrowing costs would face upward pressure.

Paresh Upadhyaya, strategist at Pioneer Investments, remarked:

"Japan's selling is clearly tied to currency intervention. There is no doubt that a massive sell-off of US Treasuries by Japan will not repeat."