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Japan to overtake China when it comes to buying U.S. debt

By Catholic Online (NEWS CONSORTIUM)
May 7th, 2012
Catholic Online (www.catholic.org)

Japan suffered more than any nation had a right to bear last year, when a 9.0 earthquake struck off the coast of Japan last March and sent a tsunami crashing into the Fukushima Daiichi nuclear power plant. There were fears that Japan would have a difficult time recovering in its place in the global economy. Never fear: Japan will soon overtake Chine in buying off U.S.-held debt.

LOS ANGELES, CA (Catholic Online) - According to data published by the U.S. Treasury Department, Japan is buying more U.S. government debt, while China has started to decrease its holdings of U.S. debt.

Between the last day of June 2011 and the last day of February 2012, entities in Japan increased their holdings of U.S. Treasury securities from $881.6 billion to $1.0959 trillion. Concurrently, entities in the People's Republic of China decreased their holdings of U.S. Treasury securities from $1.307 trillion to $1.1789 trillion.

The Japanese increased their net holdings of U.S. government debt by $214.3 billion while the Chinese decreased theirs by $128.1 billion in just eight short months. From the end of June through February, the Japanese have closed the gap between their holdings of U.S. debt and China's holdings of U.S. debt by about $53.13 billion per month.

The Chinese owned $425.4 billion more in U.S. government debt than the Japanese at the end of June of last year. By the end of this February, the Chinese owned only $83 billion more than the Japanese. If the June-through-February trend continued through March and April, for which data has not yet been reported, the Japanese may have already overtaken the Chinese in ownership of U.S. debt.

Four days after the earthquake and tsunami hit Japan, the Associated Press predicted that "Some worry that Japan will sell some of its vast holdings of U.S. government debt to raise money. Doing so would push the prices of U.S. Treasury bonds down and yields up, raising U.S. interest rates."

A report in the New York Times on March 15, 2011, made a similar observation.

"Analysts also rushed to calculate the 'repatriation risk' as Japanese investors with money abroad rushed to bring it home--for reconstruction or to have readier access to their savings," the Times reported. "With interest rates at home near zero, Japanese investors have looked elsewhere for higher yields. Japan is the second largest holder of United States Treasury bonds, after China, and any withdrawal on a large scale could put some upward pressure on interest rates in the United States."

In stark contrast, the Japanese did not start drawing their money out of the United States - but China did.

While diminishing their overall holdings of U.S. Treasury securities since last June, the Chinese, over the past three years, have almost entirely divested from U.S. Treasury bills, which are notes that mature in one year or less. Chinese ownership of T-bills peaked in May 2009 at $210.4 billion. By the end of February, according to the U.S. Treasury, Chinese ownership of T-bills had dropped to $3.76 billion-a decline of 98 percent.

By contrast, the Japanese have increased their ownership of U.S. T-bills over the past three years. In May 2009, the Japanese owned about $60.4 billion in T-bills, according to the U.S. Treasury. By the end of February 2012, they owned about $63.1, an increase of $2.7 billion, or about 4.5 percent.

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