Japan and China Slash U.S. Treasury Holdings Amid Gulf Conflict

In March 2026 foreign governments reduced their U.S. Treasury portfolios, led by Japan and China. Japan’s holdings fell by roughly $47 billion to about $1.19 trillion, while China’s stock fell by $41 billion to $652.3 billion—the lowest level since September 2008. Total foreign-owned Treasuries declined 1.5 % to between $9.25 trillion and $9.35 trillion, depending on the source. The sell-off coincided with the first full month of the U.S.–Israel war on Iran, which spiked oil prices and pressured Asian currencies.

Foreign holdings of US Treasuries fall as Japan, China cut exposure

The Gulf conflict triggered an energy shock that pushed crude prices higher and destabilised exchange rates across Asia. Central banks in Japan, China and other export-oriented economies intervened to support their currencies, prompting the liquidation of dollar-denominated assets. Analysts linked the move to heightened financial volatility, rising inflation expectations and a tactical shift toward cash-like holdings amid uncertain rate-cut prospects from the Federal Reserve.

CNBC

• Japan: ? $1.192 trillion (-4 % YoY)

South China Morning Post

• China: $652.3 billion (-6 % MoM, -14 % YoY since early 2025)

South China Morning Post

• United Kingdom: $926.9 billion (+3.3 % MoM) – the second-largest holder and a major custody hub.

Reuters

• Valuation loss: Foreign investors recorded a $142.1 billion mark-to-market loss on long-term Treasuries in March.

CNBC TV18

• Capital inflows: U.S. Treasury inflows rose to $13.5 billion (up from $2.6 billion in February); corporate bond inflows reached $76.8 billion; equity inflows fell to $10.5 billion. Net capital inflows to the United States slipped to $150.7 billion from $182.7 billion the prior month.

US Stock Market: Foreign holdings of US Treasuries fall in March as Japan, China cut exposureForeign holdings of US Treasuries fall as Japan, China cut exposureReutersCNBC

HSBC’s chief Asia economist Frederic Neumann said the war-driven volatility and exchange-rate pressure made Treasury sales “not a surprise.” Morgan Stanley’s China chief economist Robin Xing noted that higher yields and oil-driven inflation have forced a “mark-to-market valuation loss” and shifted institutional investors toward equities while staying “underweight on government and credit bonds.” Standard Chartered’s Greater-China chief economist Ding Shuang warned that concerns over U.S. debt sustainability and geopolitical risk are “fueling a clear desire for alternative safe assets.” The U.S. Treasury Department’s data release confirmed the magnitude of the month-to-month decline.

South China Morning Post

Some analysts argue the sell-off could deepen if Treasury yields continue to rise, stressing that the United States faces limited alternative safe-haven destinations. They caution that prolonged Middle-East tensions may accelerate a broader retreat from U.S. sovereign debt, potentially raising borrowing costs and testing the market’s liquidity buffer.

South China Morning Post

Sources differ on the total foreign holding amount: CNBC cites $9.25 trillion, SCMP reports $9.35 trillion, while Reuters, TradingView and Economic Times list $9.348 trillion. Japan’s holdings are quoted as $1.191 trillion (CNBC) versus $1.192 trillion (other outlets). These variations stem from rounding conventions and timing of data releases.

South China Morning Post

The coordinated reduction by the world’s two largest foreign holders signals heightened sensitivity to geopolitical risk and currency stability. Persistent outflows could pressure Treasury yields, affect the Federal Reserve’s policy stance, and encourage investors to seek non-U.S. safe assets, reshaping global capital allocation patterns.

South China Morning Post

April’s Treasury Department figures, due next month, will reveal whether central banks are extending the sell-off or stabilising holdings as markets absorb the energy shock. Monitoring yield trajectories and any further currency interventions will be essential for assessing the durability of the current trend.

CNBC

• “Given increased financial volatility since the start of the war in the Gulf, and resultant pressure on exchange rates, especially in Asia, it is not a surprise that U.S. Treasury holdings by central banks have fallen,” — Frederic Neumann, Chief Asia Economist, HSBC

CNBC

• “We’re seeing global institutional investors currently favouring equities while staying broadly equal or underweight on government and credit bonds,” — Robin Xing, Chief China Economist, Morgan Stanley

South China Morning Post

• “Robin Xing, chief China economist at Morgan Stanley, said the repricing of Fed cuts amid an oil-driven inflation has pushed yields higher, triggering a mark-to-market valuation loss while prompting global investors to turn more cautious on rates.” — Robin Xing, Chief China Economist, Morgan Stanley

South China Morning Post

• “Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered, said that mounting concerns over US debt sustainability and geopolitical risks have fuelled a clear desire for alternative safe assets, while cautioning against expectations for a rapid, massive shift.” — Ding Shuang, Chief Economist for Greater China & North Asia, Standard Chartered

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