U.S. bonds brace for impact of Japan’s currency moves (2024)

FAQs

Is Japan buying US Treasury bonds? ›

Japan is the world's largest foreign holder of Treasuries, but its footprint in the Treasuries market is tiny compared to what it once was. According to Treasury International Capital figures, Japan held $1.17 trillion in U.S. Treasury securities at the end of February.

Why is the yen falling? The value of a country's currency rises and falls relative to currencies elsewhere in line with the laws of supply and demand. At the moment, investors are being driven to offload the yen due to a yawning gulf in interest rates between Japan and the United States.

The USD/JPY currency pair has traditionally had a close correlation with U.S. Treasuries. When yields on Treasury bonds, notes, and bills rise, the Yen tends to weaken relative to the dollar. This is because people can borrow Yen more cheaply to buy higher-yielding dollars.

This issue is being raised as the dollar has surged against key Asian currencies in the past two months: The Japanese yen has weakened to its lowest level in 34 years (see chart), while the South Korean won has slipped to an 18-month low and the Chinese renminbi to a six-month low.

Nearly half of all US foreign-owned debt comes from five countries. All values are adjusted to 2023 dollars. As of January 2023, the five countries owning the most US debt are Japan ($1.1 trillion), China ($859 billion), the United Kingdom ($668 billion), Belgium ($331 billion), and Luxembourg ($318 billion).

In total, other territories hold about $7.4 trillion in U.S. debt. Japan owns the most at $1.1 trillion, followed by China, with $859 billion, and the United Kingdom at $668 billion. In isolation, this $7.4 trillion amount is a lot, said Scott Morris, a senior fellow at the Center for Global Development.

The Kuwaiti dinar is the strongest currency in the world, with 1 dinar buying 3.26 dollars (or, put another way, $1 equals 0.31 Kuwaiti dinar). Kuwait is located on the Persian Gulf between Saudi Arabia and Iraq, and the country earns much of its wealth as a leading global exporter of oil.

US Dollar to Japanese Yen Exchange Rate is at a current level of 156.72, down from 156.85 the previous market day and up from 140.26 one year ago. This is a change of -0.08% from the previous market day and 11.73% from one year ago.

Dive into the factors behind the yen's decline: Japan's near-zero interest rates, a massive balance sheet, economic growth disparities with the US, and global currency dynamics. Here's what it could mean for JPY pairs.

Major currencies, such as the Japanese yen, euro, and the U.S. dollar, are floating currencies—their values change according to how the currency trades on foreign exchange or forex (FX) markets. This type of exchange rate is based on supply and demand.

Why is USD JPY so important? ›

The USD/JPY currency pair is highly liquid and frequently traded, with both the US dollar and Japanese yen seen as safe-haven currencies, which traders focus on due to their significant role in global forex reserves and their impact on market sentiment.

Interest rate differentials. Quantitative easing. Economic growth rates. The relative size of trade balances.

The highest-valued currency in the world is the Kuwaiti Dinar (KWD). Since it was first introduced in 1960, the Kuwaiti dinar has consistently ranked as the world's most valuable currency. Kuwait's economic stability, driven by its oil reserves and tax-free system, contributes to the high demand for its currency.

When to exchange: Although it depends on the currency, it is generally better to exchange yen in Japan than in your home country, due to a lower commission and better exchange rate. Similarly, you'll typically get better rates away from the major airports.

And Treasury plans to issue a lot of debt. And, thus, the Treasury needs buyers. At this point, the Fed is no longer a buyer of Treasuries. Pension funds, mutual funds, retail portfolios, institutional portfolios, and an assortment of exchange traded funds have been important domestic buyers.

U.S. Treasury Bonds

In fact, Japan is by far the largest foreign owner of U.S. treasury securities, with Japanese banks, pension funds, insurance companies etc. holding a total of $1.138 trillion at the end of 2023.

The BOJ has been an aggressive bond buyer to defend its ultra-low rate policy. That has pushed its ownership to more than half the market, putting a squeeze on liquidity and impairing market function.

The three largest holders of Treasuries -- Japan, China and the UK -- led the purchase U.S. government debt.