Japan and China lead flight from the dollar

Japan and China led a record withdrawl of foreign funds from the United States in August, heightening fears of a fresh slide in the dollar and a spike in US bond yields.

The US requires $70bn a month in capital inflows to cover its current account deficit

Data from the US Treasury showed outflows of $163bn (£80bn) from all forms of US investments. “These numbers are absolutely stunning,” said Marc Ostwald, an economist at Insinger de Beaufort.

Asian investors dumped $52bn worth of US Treasury bonds alone, led by Japan ($23bn), China ($14.2bn) and Taiwan ($5bn). It is the first time since 1998 that foreigners have, on balance, sold Treasuries.

Mr Ostwald warned that US bond yields could start to rise again unless the outflows reverse quickly. “Woe betide US Treasuries if inflation does not remain benign,” he said.

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