Japan Unlikely to Dump U.S. Treasuries Amid Lack of Alternatives, Says Ex-BOJ Official
Japan is unlikely to have sold off its substantial U.S. Treasury holdings despite a major sell-off in April, according to former Bank of Japan (BOJ) policymaker Sayuri Shirai. Shirai, now a professor at Keio University, explained that the U.S. dollar remains the most desirable reserve currency due to the depth of American capital markets and the country’s technological strength. She noted that Japan, like many nations, has limited alternatives when it comes to placing its foreign reserves.
The dollar’s position as the world’s leading reserve currency came under renewed scrutiny following a spike in U.S. Treasury yields triggered by former U.S. President Donald Trump’s sweeping tariff announcements in early April. Market speculation arose that Japan or China—the two largest holders of U.S. Treasuries—may have reduced their positions. However, Shirai downplayed these rumors, emphasizing the absence of suitable alternatives, especially given the euro’s weaknesses.
Although European Central Bank President Christine Lagarde recently suggested the euro could become a viable competitor to the dollar, Shirai argued this is unlikely. She cited Europe’s political fragmentation and underdeveloped capital markets as major obstacles to the euro’s ascension as a global reserve currency. This view reinforces why Japan continues to hold on to its dollar-denominated assets.
In Asia, China’s yuan presents a more plausible rival to the dollar in regional trade. Shirai pointed out that China is increasingly conducting trade in yuan, boosting its influence in the region. While the dollar will likely maintain its dominance, the use of the yuan in Asian transactions is expected to grow, potentially altering the landscape of regional finance over time.
Despite a slow decline in the dollar’s share of global reserves—now at 58%, its lowest in decades—it remains far ahead of competitors like the euro (20%) and yuan (2%). The Japanese yen accounts for about 5.8% of global reserves. These figures, sourced from the International Monetary Fund, underscore the continued reliance on the dollar in global finance, supporting Shirai’s argument that Japan has little reason to reduce its U.S. Treasury holdings.
Source: Reuters