Japan likely held off US Treasury sales, says ex-BOJ policymaker

Former BOJ policymaker Sayuri Shirai suggests Japan likely refrained from selling its U.S. Treasury holdings due to the dollar's continued dominance as a reserve currency and the lack of viable alternatives. Shirai dismissed the euro's potential to rival the dollar, citing political fragmentation and shallow capital markets in Europe, while acknowledging the yuan's growing influence in Asia due to increased trade with China; however, the dollar still comprises 58% of international reserves, dwarfing the euro's 20% share.

Analysis

Former Bank of Japan policymaker Sayuri Shirai asserts that Japan likely maintained its U.S. Treasury holdings despite market speculation of a sell-off in April, primarily due to the U.S. dollar's entrenched status as the dominant global reserve currency and the absence of viable investment alternatives. Shirai highlights the dollar's unwavering position, supported by the depth of U.S. capital markets and the nation's technological competitiveness, effectively dismissing the notion of Japan diversifying away from U.S. assets. This perspective contrasts with concerns sparked by U.S. President Donald Trump's April 2 tariff announcements and previous remarks about the dollar's strength. While European Central Bank President Christine Lagarde suggested the euro could emerge as an alternative, Shirai expresses skepticism, citing Europe's political fragmentation and less deep capital markets. Instead, Shirai identifies China's yuan as a more probable, albeit regional, competitor in Asia, driven by increasing yuan-denominated trade. IMF data corroborates the dollar's leading role, accounting for 58% of international reserves, significantly ahead of the euro's 20%, the Japanese yen's 5.8%, and the yuan's 2%, even as the dollar's share has seen a multi-decade low.

Key Decisions for Investors

• Investors should consider the continued stability of major foreign holdings of U.S. Treasuries, like Japan's, as a factor supporting U.S. debt markets, given the dollar's persistent reserve currency dominance.
• Monitor the gradual increase in yuan-denominated trade in Asia as a long-term trend potentially influencing regional currency dynamics, though its immediate global impact on the dollar's supremacy appears limited.
• Evaluate the structural challenges facing the euro, such as political fragmentation and capital market depth, which currently inhibit its ability to significantly rival the U.S. dollar as a primary reserve currency.