By Leika Kihara

TOKYO (Reuters) -Japan likely held off selling from its huge U.S. Treasury holdings as there is no alternative investment given the dollar's status as a global reserve currency, former Bank of Japan (BOJ) policymaker Sayuri Shirai said on Thursday.

Japan and China are the two largest holders of U.S. Treasuries, making their presence a huge focus of attention whenever U.S. yields spike.

Although both countries say little about their trading, the huge U.S. Treasury sell-off in April has led to market speculation they could have, or might have, unloaded their holdings.

"Japan probably hasn't sold its holdings as there's nothing else to buy. What countries including Japan want to hold onto as a reserve currency is the dollar rather than the euro," Shirai told Reuters in an interview.

"The dollar's dominance as a reserve currency is unwavering" given the depth of U.S. capital markets and the country's technological competitiveness, she said, ruling out the idea of Japan diversifying out of U.S. assets.

Now a professor at Keio University, Shirai retains close contact with current global policymakers.

U.S. President Donald Trump's sweeping tariff announcement on April 2 led to a market rout, including in U.S. Treasuries, casting doubt over the dollar's status as the safest haven for the global financial system. Trump's previous complaints about the strong dollar also raised suspicions that Washington wants an adjustment lower in the world's top reserve currency.

European Central Bank President Christine Lagarde said on Monday the euro could become a viable alternative to the dollar if the bloc's governments could strengthen its financial and security architecture.

But Shirai said she had doubts the euro could become a real alternative to the dollar, as a politically fragmented Europe and a lack of depth in the region's capital markets diminish its allure as a reserve currency.

In Asia, China's yuan is the more likely potential competitor to the dollar, she said.

"Europe is a distant region for Asia and not a big trade destination," Shirai said. "China, by contrast, is boosting its presence in Asia with an increasing volume of trade now using the yuan," Shirai said.

"While the dollar will remain the dominant currency in Asia, the increase in yuan-denominated trade will likely continue."

The dollar's role has been on the decline for years. The currency now makes up 58% of international reserves, the lowest level in decades - but still well above the euro's 20% share, according to data from the International Monetary Fund. The share of holdings in yuan stood at 2% and the Japanese yen at 5.8%.