Japan Displaces China as Largest Holder of Treasuries

Japan overtook China as the largest foreign holder of US Treasury debt last month. China reduced its holdings of treasuries by $34 billion in December and now holds $755.4 billion of US government debt. Conversely, Japan added to its holdings by $11.5 billion during the month, ending the year with $768.8 billion of treasuries in its portfolio.

In the article, “Japan Reclaims Title of Top Treasury Holder”, The WSJ highlights the mounting concerns that China’s waning interest in US treasury debt could have for our ability to finance our growing deficits.

The purchasing behavior of China has been troubling to some analysts and potentially to a U.S. government that is seeking to borrow a record amount this fiscal year. The latest shift would seem to reinforce market worries that China is tiring of its role as a key creditor to the U.S. amid rising budget deficits and tensions between Beijing and Washington.

While fiscal problems in Europe could provide a short-term boost to the United States, particularly from “safe haven” buyers, the long-term threat from declining support from China (seeking diversification) and Japan (as the country inevitably shifts from a creditor to a debtor nation) should be the cause of great concern for investors.