With Sino-U.S. tensions escalating over security and economic issues, fears are mounting in financial markets that China may massively sell the U.S. government debt it holds as a weapon to choke the world's biggest economy.
If Beijing, which owns more than $1 trillion (¥106 trillion) worth of U.S. Treasury bonds, were to take such action, it would push down debt prices and drive up interest rates in the United States, stifling investment and consumer spending at home.
As large-scale sales of U.S. dollar-denominated assets would trigger the depreciation of the currency against the yen, Japan's economy could also be hit by a downturn in exports, a key engine of growth, diplomatic sources have said.