The U.S. Treasury Department said China trimmed its holdings of U.S. Treasury securities in January 2011 for the third consecutive month by $5.4 billion. China retained its position as the largest foreign holder of the U.S. Treasury securities with $1.1547 trillion in its portfolio.

Meanwhile, the second largest foreign holder Japan continued its net buying, boosting its holdings to $885.9 billion from $882.3 billion last December. Total holdings of Treasury securities by all foreign countries amounted to $4.45 trillion at the end of January.

It remains to be seen how the earthquake and tsunami in Japan will impact the capital flow, but there are widespread reports of repatriation of funds to help Japan shore up as it recovers from the disaster.

The securities are important for the United States to fund its massive budget deficits that hit a record high of $222.5 billion in February.