There’s a new king of U.S. government debt. Japan edged China in February as the largest foreign holder of U.S. government securities, the Treasury Department reported late Wednesday.
The agency released its monthly report on foreign holdings of U.S. government longer-term debt and it showed that Japan in February held more than $1.224 trillion in U.S. government securities. That’s slightly above the $1.223.7 trillion held by China. Both actually reduced slightly their holdings from a month earlier.
In the 12 months since February 2014, Japan increased its holdings by $13.6 billion while China has reduced its holding by $49.2 billion. China had surpassed Japan as the top holder of U.S. bonds back in 2008.
The change at the top of foreign holders of U.S. securities reflects two Asian economies facing different challenges. Japan is purchasing financial assets in a manner similar to what the U.S. Federal Reserve did during the financial crisis. It’s a bid to lower the value of its currency, the yen, against foreign currencies. That in order to encourage more risk taking and spark more investment activity.
China faces an ongoing slowdown, with a first-quarter economic growth rate in the range of 7 percent. That’s stellar in most of the world, but markedly slower than China’s blazing double-digit growth of just a few years ago. By lowering its holdings of U.S. debt, China helps stave off too much weakening of the yuan against the dollar, which would reignite an irritant in U.S.-China relations.
Over all, the sum of foreign purchases of U.S. government securities reflected an inflow of $4.1 billion in February, the Treasury Department said in a statement. That number came from outflows of $7.2 billion in the month that were more than offset by net inflows of $11.3 billion.
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