International Forex News - August 18

Japan Cuts U.S. Treasury Holdings Sharply in June; Strategists Say Further Selling Is Unlikely

August 18, News: In June, foreign investors’ holdings of U.S. Treasuries declined, mainly due to reductions by Japan and China. According to data released by the U.S. Treasury on Monday, foreign holdings of U.S. Treasuries fell by $72.1 billion month-on-month to $9.3 trillion in June. Foreign holdings have declined in three of the past four months after reaching a record high in February. During that period, U.S. Treasuries fell as investors worried about the huge fiscal deficit and inflation above target. Japan, the largest holder of U.S. Treasuries, posted the biggest reduction in June, cutting holdings by about $26.4 billion to $1.12 trillion. In recent months, the yen has remained under pressure, prompting Japanese intervention to stabilize the currency. The United States also joined the intervention effort in late July. Some market observers believe the move reflected concern that Japan might sell U.S. Treasuries to defend the yen, which would push up U.S. borrowing costs. “Japan’s actions were clearly driven by foreign-exchange intervention needs,” said Paresh Upadhyaya, a strategist at Vanguard. He noted that U.S. Treasury Secretary Bessent not only joined the intervention in July, but also suggested Japan could use Federal Reserve tools to avoid directly selling Treasuries. It is fair to say we are unlikely to see Japan sell U.S. Treasuries again.

The Fed Has a 65% Chance of Keeping Rates Unchanged in September

August 18, News: According to CME FedWatch, the probability that the Federal Reserve will keep rates unchanged in September is 65%, while the probability of a 25-basis-point hike is 35%. For October, the probability of no change is 51.4%, the probability of a 25-basis-point hike is 41.3%, and the probability of a 50-basis-point hike is 7.4%.