Japan surpasses China as holder of U.S. securities

Bloomberg

Japan’s purchases of U.S. Treasuries helped it overtake China last June as the largest foreign holder of American securities, including equities, asset-backed paper and U.S. government debt, Treasury Department figures show.

Tokyo’s total holdings of all types of U.S. securities grew to $1.84 trillion at the end of June 2012, up from $1.59 trillion a year earlier, fueled in part by purchases of $227 billion worth of federal government debt during the 12-month period. Meanwhile, China’s holdings fell to $1.59 trillion from $1.73 trillion during the same period, as Beijing looked to sell Treasuries.

“Japan has been gaining all along,” said Jim Vogel, head of agency debt research at FTN Financial in Tennessee. He added that “in a slow economy,” U.S. securities have “been an investment of choice.”

Japan’s biggest Treasury purchases followed interventions in the currency market. Tokyo bought $76.9 billion of the securities in September 2011 and $59.9 billion of U.S. government debt that November, after selling ¥13.59 trillion in interventions in September and October the same year.

The yen reached a record high of ¥75.35 to the dollar in October 2011 but has weakened since, trading at ¥92.34 at 5 p.m. Thursday.

“Japanese stimulus measures have involved purchasing foreign securities to stimulate the domestic economy,” said Gennadiy Goldberg, a U.S. strategist at TD Securities Inc. in New York. “On the other side of the picture, Chinese buying of Treasuries has slowed due to the gradual appreciation in the yuan, with China not needing quite so many Treasuries to keep the currency fixed in place.”

However, Japan’s purchases of U.S. Treasuries have slowed since the end of June, and China has regained its title as the leading foreign holder of U.S. government debt. Beijing’s holdings of Treasuries rose $19.7 billion to $1.2 trillion in December, the Treasury Department reported Feb. 15, while Japan’s holdings came to $1.12 trillion.

Chinese ownership of U.S. debt became an issue during last year’s U.S. election campaign.

The unsuccessful Republican presidential nominee, Mitt Romney, raised the issue during his acceptance speech at his party’s August convention. And a political action committee, the Americans for Prosperity Foundation, joined with the advocacy group Citizens Against Government Waste to air TV commercials that portrayed China’s ownership of Treasuries as a threat to U.S. independence.

China’s current account surplus was 2.69 percent of gross domestic product at the end of 2011, down from 9.7 percent at the end of 2007, according to data compiled by Bloomberg.

The Treasury Department said the final results of the foreign portfolio holdings of the U.S. securities will be released April 30, while a preliminary report of U.S. holdings of foreign securities at the end of 2012 is expected to be released by Aug. 30.