Japan Holdings of U.S. Securities Surpassed China’s by June 2012

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

Total Japanese holdings of all types of U.S. securities grew to $1.84 trillion at the end of June 2012, the most recent period for which the Treasury has released data, from $1.59 trillion a year earlier, fueled in part by Japan’s purchases of $227 billion of U.S. government debt during the 12-month period. China’s holdings fell to $1.59 trillion from $1.73 trillion during the same 12 months, a period when China was selling Treasuries.

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

China remained the biggest foreign holder of U.S. Treasuries as of December, according to a separate Treasury report.

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

The yen reached a record high of 75.35 per dollar in October 2011 and has weakened since, trading yesterday at 92.59.

“Japanese stimulus measures have involved purchasing foreign securities in order to stimulate the domestic economy,” Gennadiy Goldberg, a U.S. strategist at TD Securities Inc. in New York, said in an e-mail. “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.”

China’s Treasuries

Japan’s purchases of Treasuries have slowed since the end of June, and China remains the biggest foreign holder of U.S. government debt. China’s holdings of U.S. Treasuries rose $19.7 billion to $1.2 trillion in December, the Treasury reported Feb. 15. Japan, the second-largest, increased its Treasury holdings by $2.5 billion 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 super-political action committee, the Americans for Prosperity Foundation, joined with the advocacy group Citizens Against Government Waste to air television advertisements that portrayed China’s ownership of Treasuries as a threat to U.S. independence.

Chinese Professor

“America tried to spend and tax itself out of a great recession” and saddled itself with “crushing debt,” a Chinese professor in the future tells his students as English subtitles appear on the screen. “Of course we owned most of their debt, so now they work for us.”

The foundation is chaired by David Koch, who with his brother Charles Koch controls Wichita-based Koch Industries Inc. They fund groups that advocate policies favored by the Republican Party.

Chinese Treasury holdings, while rising last year, are still below the peak of $1.31 trillion reached in July 2011.

“Because China doesn’t have as big of a current account surplus as it had in the past, it doesn’t have to buy as much of U.S. securities,” said Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics in Washington. “Both Japan and China are still holding a lot of U.S. securities.”

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

To contact the reporters on this story: Kasia Klimasinska in Washington at kklimasinska@bloomberg.net; Daniel Kruger in New York at dkruger1@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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