Japan's Currency Intervention Puts Pressure on US Treasuries and Risk Assets

Japan's efforts to defend its currency are putting pressure on U.S. Treasuries and risk assets, according to market watchers.

The country's reserve assets fell by $79.6 billion in August, prompting concerns about how Tokyo funded its yen purchases and whether another bout of currency weakness could lead to increased selling pressure on U.S. government debt.

Japan remains the largest foreign holder of U.S. Treasuries, with more than $1 trillion invested in these securities.

The funding mechanism is key for bond traders, as Japan needs dollars when it buys yen in the currency market, and selling foreign securities can yield those funds.

This could lead to additional reductions in Japan's overseas bond holdings, which would put further pressure on U.S. yields already elevated at 4.8% for the 10-year Treasury and 5.3% for the 30-year yield.