Japan's US Treasury sell-off concerns some observers

How's that for an ambiguous title? The thing is, while it may not be huge news yet, it's certainly a warning sign that foreign investors are ready to start hedging their bets against the dollar. So while I don't want to be alarmist, there's clearly cause for concern that the free-spending policies of Bush and the GOP Congress (and don't forget Dick "Reagan proved that deficits don't matter" Cheney) have broader ramifications than any of them have been willing to admit. And with budget projections that rely on hundreds of billions more in foreign debt in the face of bearish international sentiment, we could be up Bushit creek.

A striking $18.2 billion fall to a two-year low in Japan's U.S. government debt holdings in March was more than just a seasonal blip and may contribute to a more bearish outlook for Treasuries if the pattern persists.

The dollar's plunge against the yen since April would suggest this selling of Treasuries has persisted although dollar assets may now be nearing attractive levels for Japan accounts to return to the Treasury market, bond analysts said.

"Given the weakness of the dollar, that is an added incentive to own JGBs (Japanese government bonds)," said Tony Crescenzi, chief bond market strategist with Miller, Tabak + Co in New York.

Since mid-April, the dollar has fallen some 7 percent against the yen as yield-seeking investors have begun to anticipate that the Federal Reserve will end its cycle of rate increases soon. Imbalances such as the gaping U.S. budget and trade deficits have also fueled dollar selling and could also worsen Treasury market sentiment, fixed-income analysts say. (. . .)

Japan, the biggest foreign owner of U.S. Treasury securities, slashed its holdings to $640.1 billion in March from $658.3 billion in February, the lowest since February 2004, a Treasury Department report showed on Monday.