August 15, 2018 / 10:26 PM / a year ago

UPDATE 1-Japan's holdings of U.S. Treasury debt fall to lowest since 2011

* Foreigners sell most Treasuries since October 2016

* Japan’s Treasuries holding falls to lowest since late 2011 (Adds background, graphic, byline)

By Richard Leong and Gertrude Chavez-Dreyfuss

NEW YORK, Aug 15 (Reuters) - Japan scaled back its holdings of U.S. government debt in June to the lowest level since 2011, as foreigners collectively dumped the most Treasuries in a single month since late 2016, U.S. Treasury Department data released on Wednesday showed.

The world’s third biggest economy is the second largest foreign creditor of the federal government, behind China, which also scaled backed its Treasuries stake to the lowest level since February.

Japan’s ownership of Treasuries decreased to $1.030 trillion in June, the lowest since October 2011. Its Treasuries stake totaled $1.049 trillion in May.

June’s $18.45 billion drop in Japan’s U.S. bond holdings marked the steepest monthly decrease since December.

Japanese investors sold 455.8 billion yen ($4.09 billion) of U.S. bonds in June, as the Federal Reserve’s gradual rate-hike campaign curbed their appetite for Treasuries, according to data from Japan’s Ministry of Finance released last week.

The latest data on foreign ownership of U.S. bonds preceded the Bank of Japan’s adjustments to its ultra-loose monetary policy. On July 31, BOJ policy-makers signaled their willingness to accept higher domestic bond yields.

If the yen rises along with Japanese government bond yields, this would reduce the appeal to domestic investors of keeping their money in bonds overseas.

So far, the yen and Japanese yields have not increased enough to cause a massive return of money back home, analysts said.

In June, the yield on 10-year Japanese government bonds ended marginally lower at 0.031 percent. It drifted up to 0.145 percent in August, which was the highest since January 2016, Reuters data showed.

Benchmark 10-year yield edged up 3 basis points in June to 2.851 percent and have not strayed far from that level.

The dollar gained versus the yen in June and July but has weakened in August.

Foreign investors became net sellers of Treasuries in June, dumping $48.57 billion.

China’s holdings of U.S. government debt slipped to $1.179 trillion, the lowest level since February and down from $1.183 trillion in May.

Meanwhile, foreign investors unloaded $27.033 billion in U.S. equities in June, following $26.58 billion in sales in May, Treasury data showed.

Overall, foreign investors bought $114.47 billion in U.S. assets in June, more than the $69.16 billion purchased in May.

Reporting by Richard Leong; editing by Dan Grebler and Phil Berlowitz

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