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| A not-quite-newsworthy flashback that I must note nonetheless. |
This news was buried somewhere with all else that's happening in the world economy, and I'm not sure if it's even that significant, but Japan has resumed the mantle of being the United States' largest lender going by the amount of Treasuries
it holds. For the month of February 2015, it's Japan at $1.2244T to China at 1.2237T [cue
We are the Champions]. It's certainly not a distinction to be proud of, but for what it's worth, earlier predictions that it would come true have proven good. In
mid-2014, the purchases of the Japanese pension fund in foreign sovereign bonds to boost negligible returns on Japanese government bonds (JGBs) was offered as a reason Japan was set to overtake China:
Japan is poised to pass China as
America’s biggest foreign creditor this year with help from the
world’s largest pension fund, according to Nomura Holdings Inc. The 126.6 trillion yen ($1.25 trillion) Government Pension
Investment Fund will increase overseas bond holdings in coming
months to earn higher yields, according to money managers,
strategists and economists surveyed by Bloomberg. Separate funds
in Japan that use GPIF’s allocations as a benchmark may follow,
according to a professor who advises the government. China’s
accumulation of reserves that it has used to buy Treasuries will
diminish, a Beijing-based official said last month.
“We do think the flow is going to be notable,” Martin
Whetton, an interest-rate strategist in Sydney at Nomura,
Japan’s biggest brokerage, said in a phone interview on July 7.
“From October onwards is when they would start to move some of
this money. It’s not enough of a flow to stop yields in their
tracks from rising.”
Meanwhile, what's the deal with China and its (slightly) falling holdings of Treasuries? The PRC's slowing economy has slackened the rate of reserve accumulation and has possibly resulted in a little "rainy day" cashing in. Add in that US fixed income rates are rather more attractive that those in the more advanced Eurozone economies and Japan has
few other choices as far as reserve currencies are concerned:
Japan has increased its net holdings of U.S. Treasuries by $13.6
billion over the past year. Meanwhile, China has decreased its net
Treasury holdings by $49.2 billion over this same period, as its once
red-hot economy has begun to cool. Therefore, it is not surprising that
Japan has overtaken China as the largest U.S. creditor.
Experts attribute this shift to several factors. The most immediate
is a recent change in the asset allocation policy of the Government
Pension Investment Fund of Japan (GPIF), the largest state pension fund
in the world. The GPIF raised its allocation for foreign bonds from
eleven percent to fifteen percent last fall in order to reap higher
yields than those available on Japanese debt. For example, the yield on a
ten-year Japanese government bond was just 0.30% on April 17, while the
yield on the comparable U.S. Treasury note was 1.87% on April 17.
Government
bond yields are also falling throughout the euro zone as central banks’
bond purchases have pushed bond yields close to zero. For example, the
yield on the ten-year German government bond was just 0.08% on April 17.
Japan (along with most other nations) believes the U.S. will be the
only developed country in the world to raise interest rates in the near
future.
I suspect that Trans-Pacific Partnership (TPP) expansion critics will use this news as ammunition for
accusations that Japan is a "currency manipulator," but for me, the notion is as retrograde as Japan being the #1 target of American demagoguery. It's so
1985, dear readers.
