Japan has succeeded China as the top foreign holder of US debt, a position it last held in August 2008.
The holdings of China, previously the chief holder of US Treasury debt, slipped 1.2 percent to $1.2237 trillion. Japan’s fell 1.1 percent from January, to $1.2244. China’s decline was a bit larger, allowing Japan to take the edge and jump into the top spot, $700 million above China.
Win Thin, the global head of emerging market strategy at Brown Brothers Harriman & Co, gave his analysis on the matter: “With the weakness in the currency and the potential outflows, there is less need or opportunity for the Chinese to accumulate dollar reserves”.
Having previously expanded rapidly to support the economy during the Great Recession, US government borrowing has fallen sharply along with a shrinking budget deficit over the past three years.
The federal deficit fell to $483bn in 2014, its lowest level in six years and below 3pc of economic output for the first time since 2007.
Private analysts had predicted that Japan would surpass China’s holdings of Treasury debt this year given the current economic trends in both nations.
China’s economy has been gradually slowing and growth of its exports has also been thinning, therefore the country has been able to invest less overseas. Yet, China has also been hoping to diversify those investments, leaving less to invest in US government bonds.
Japan however, has engaged in an aggressive effort to boost the country’s money supply to enhance the economy and fend off low inflation, meaning more money has been available for overseas investment. Similarly, Japanese investors have been attracted to dollar holdings because of higher rates of return on dollar-denominated investments.
Will China reclaim the title of biggest US debt holder in the future? Perhaps not with its slowing economy.
But never underestimate Les Chinois.
By Freya Twigden