The two major American "creditors" simultaneously sold off for the first time this year! With intervention in the foreign exchange market, Japan's holdings have decreased for two consecutive months, while China's bond holdings are approaching the lowest level since 2009

Official data from the United States shows that despite the announcement of the plan to slow down the tapering of the balance sheet at the May FOMC meeting and Fed Chair Powell's statement that the next step is unlikely to be a rate hike, the two major overseas "creditors" of the United States, Japan and China, collectively sold off their holdings for the first time this year.

The U.S. Treasury Department's Treasury International Capital (TIC) report shows that in May, Japan's holdings of U.S. Treasuries decreased by $22 billion compared to April, falling to $1.1283 trillion, further away from the high set in March after four consecutive months since August 2022 when the Japanese government intervened in the foreign exchange market, reaching a new low since November last year after six consecutive months of growth, with holdings decreasing for two consecutive months, totaling a reduction of $59.5 billion.

Since surpassing China in June 2019, Japan has been the largest foreign holder of U.S. Treasuries. As of May this year, Japan has increased its holdings of U.S. Treasuries for nine out of the past twelve months.

The TIC report shows that mainland China's holdings of U.S. Treasuries in May decreased by $2.4 billion compared to April, reversing the three consecutive months of decline, falling to $768.4 billion, approaching the low set in March 2009. Since April 2022, China's holdings of U.S. Treasuries have been below $1 trillion, and as of May, China remains the second largest holder of U.S. Treasuries after Japan.

According to Wall Street News, among the top ten countries and regions listed in the TIC report, only four countries and regions reduced their holdings in May, with Japan's reduction far exceeding that of other regions. Among the six countries and regions that increased their holdings, the Cayman Islands, ranking sixth in total holdings and representing hedge fund interests, increased their holdings by $17.1 billion, leading in scale. Canada followed closely with an increase of $16.3 billion, ranking just below China, and the United Kingdom increased its holdings by $13.1 billion, with relatively smaller increases in other regions.

According to data from the Bank of Japan, the Japanese government may have intervened in the foreign exchange market at least twice in the week ending May 3, including on May 2, spending a total of about 9 trillion yen. This intervention implies that Japan, as a major buyer of U.S. Treasuries, may reduce its holdings of U.S. dollar assets, including U.S. Treasuries, in order to stabilize the yen exchange rate. The TIC report released last month already showed a decrease in Japan's holdings of U.S. Treasuries in April, reflecting the impact of Japan's intervention to support the yen by selling U.S. Treasuries. The scale of the decrease in Japan's holdings of U.S. Treasuries in April accounted for more than half of the total decrease in overseas U.S. Treasuries that month Previously, some analysis believed that the unexpected increase in China's holdings of US Treasury bonds in April this year may reflect China's phased adjustment strategy, buying US Treasury bonds to replace gold, as both have high similarities and substitutability in terms of liquidity, hedging properties, etc. Given the rise in US Treasury bond prices in May, the valuation of China's holdings of US Treasury bonds has correspondingly increased, and the "bottom fishing" behavior of buying US Treasury bonds in April has also brought considerable investment returns. However, the phased increase in holding US Treasury bonds may not necessarily change the pace of China's diversification of foreign exchange reserves.

According to the announcement by the State Administration of Foreign Exchange of China last month, as of the end of May, foreign exchange reserves amounted to $3.3232039 trillion, increasing month-on-month for four consecutive months. The State Administration of Foreign Exchange reiterated that the size of foreign reserves is affected by factors such as exchange rate conversion and changes in asset prices, pointing out that the US dollar index fell in May, and global financial asset prices generally rose.

Market data shows that major US stock indices rose across the board in May, with the S&P, Dow, and Nasdaq rebounding after falling in April; the yield of the benchmark 10-year US Treasury bond fell by about 18 basis points cumulatively for the month, after a sharp rebound in April; the US dollar index stopped its four-month continuous rise in May, experiencing a monthly decline for the first time this year; gold rose for three consecutive months, with COMEX gold futures rising by nearly 2% in May.

Facing risks such as high inflation and geopolitical tensions, the trend of diversification of global central bank reserve assets continues. Global central banks, including the People's Bank of China, are seen as major drivers of the rise in gold prices. The World Gold Council (WGC) stated last month that despite the high gold prices, demand remains strong. The association also mentioned that the central banks of Turkey, China, India, and Kazakhstan are the largest net buyers of gold so far this year.

In May, after more than a year of continuously increasing gold reserves, the People's Bank of China stopped. Data from the State Administration of Foreign Exchange of China shows that China's gold reserves in May remained flat compared to April, ending the eighteen-month consecutive increase trend. In June, reserves continued to remain unchanged, with no gold purchases for two consecutive months.

A report by Wall Street News this month mentioned that industry insiders believe that gold will still be an important choice for many central banks to optimize their international reserve structure in the future. The Reserve Bank of India has been "buying up" gold, helping to boost the recent rise in gold and silver prices. Analysts from the World Gold Council pointed out that the gold reserves of the Reserve Bank of India hit a new high since July 2022 in June