Japanese government bond yields have reached a secular high. For years, Japan has been the largest foreign holder of U.S. Treasuries, driven by ultra-low domestic interest rates—fueling the well-known carry trade: borrow in yen, invest in higher-yielding U.S. government debt. But now the tides may be turning:
- Japan may no longer be a reliable buyer of U.S. Treasuries, as rising domestic yields diminish the appeal of the carry trade.
- China could scale back purchases in response to escalating trade tensions and tariff policies.
- The Philippine central bank has signaled its intent to actively reduce its holdings of U.S. Treasuries.
These developments raise critical questions about future demand for U.S. government debt—and could have significant implications for funding costs and financial market stability.