The Federal Reserve and Japanese investors are poised to pass China and become America’s largest creditors following efforts from U.S. policy makers and the Bank of Japan to stimulate growth.
The CHART OF THE DAY shows the U.S. central bank’s Treasury holdings have risen to a record $821.2 billion, approaching China’s $846.7 billion. The figure for Japan is $821 billion, the most ever. China overtook both the Fed and Japan in 2008 as the communist nation bought dollars to hold down the yuan as a way to aid exporters, funneling the greenbacks into U.S. debt.
“Since August, the Fed has been buying Treasuries,” said Hiromasa Nakamura, a senior investor at Mizuho Asset Management Co. in Tokyo, which manages the equivalent of $36.8 billion and is part of Japan’s second-largest bank. “After the Bank of Japan’s intervention, maybe they will invest in Treasuries. China is diversifying its assets. They may buy the bonds of other countries."
The Fed plans to purchase $32 billion of Treasuries starting today through Nov. 8 as it reinvests proceeds from its mortgage holdings in government debt, according to the central bank website. It will probably end up buying at least $1 trillion more of the securities to sustain the recovery, Goldman Sachs Group Inc., one of the 18 primary dealers that are authorized to trade directly with the central bank, said in a report yesterday in the U.S.
Japan sold the yen to weaken it on Sept. 15 for the first time in six years, stoking speculation it bought dollars and invested them in Treasuries. The nation has been a net purchaser of overseas bonds every week since the five days ended May 14, Ministry of Finance data showed today.
China’s foreign-exchange reserves rose to a record $2.65 trillion on Sept. 30, according to the central bank, as the nation bought dollars to keep its currency from appreciating. The bank said in June would allow a more flexible exchange rate.
(For a copy of the chart, click here.)