Great Graphic: China and Japan Treasury Holdings

This Great Graphic, created on Bloomberg, shows Japan (white line) and China (yellow line) holdings of US Treasuries in November 2014 based on the latest TIC data. 

Japan's holdings rose to a record $1.24 trillion in November.  This is a $56 bln increase from November 2013.   

On the other hand, China reduced its Treasury holdings for the third consecutive month in November to $1.25 trillion.  From November 2013, China's Treasury holdings have fallen by $66 bln.  An important caveat is that the TIC data often initially attributes buying to the financial center of the transaction and later revise to what it believes is the beneficial owner. 

That said, Japan's holdings of US Treasury's may exceed China's in 2015 for the first time since 2008.  In addition, although some will see China's decline in Treasury holdings as some kind of negative sign for the US, it is considerably more complicated than that.  Treasury accumulation by China (and other central banks) is not desired by the US Treasury.  Central bank accumulation of Treasuries is often conducted to resist adjustment of currency valuation.   It is not clear how far the US Treasury will push this line, but US officials are unlikely to be disturbed by the decline in China's Treasury holdings.    

The decline in China's Treasury holdings have been gradual and minor.  China's holdings peaked in November 2013 just shy of $1.317 trillion.  The decline could be mostly passive as issues mature.  Given the low rates available at the short-end of the curve, China also appears to have done what many private investors have done, namely shift toward longer duration.  China's reduced holdings in the August-November 2014 period have not prevented a continued decline in US bond and note yields.