Japan May Replace China as Biggest U.S. Creditor

The China credit card Romney assails is giving way to Japanese lenders.

China is poised to lose its place as the U.S.’s biggest creditor for the first time since the height of the financial crisis, blunting one of Mitt Romney’s favored attacks in the presidential campaign.

Chinese holdings of Treasuries fell 0.2 percent this year through July to $1.15 trillion, the latest government data show. Japan, a stronger ally of the U.S., raised its stake by 5.6 percent to $1.12 trillion, on pace to top the list of foreign creditors by November. The Treasury Department will release its tally of international capital flows for August today.

Bain Legacy

“I understand my opponent has been running around Ohio claiming he’s going to take the fight to China,” Obama said at a Sept. 17 campaign event in Columbus, Ohio.

Trade Deficits

Neither has been an issue in the past year as traders sought the relative safety of Treasuries. Investors offered to buy a record $3.17 for each dollar of the $1.68 trillion of debt sold in 2012, compared with the previous high of $3.04 set in 2011, according to data compiled by Bloomberg.

Frozen Yuan

“The Japan-U.S. relationship is much better than the U.S.- Sino relationship,” Akira Takei, head of the international fixed-income department in Tokyo at Mizuho Asset Management Co., which oversees the equivalent of $42 billion, said in a telephone interview on Oct. 12.

'Most Potential'

“China has the most potential, from both the monetary and fiscal perspective, to stimulate economic growth,” said Will Tseng, who invests in Treasuries at Taipei-based Shin Kong Life Insurance Co., which has the equivalent of $52.8 billion in assets. “Japan’s in deflation. Nothing has helped the economy,” Tseng said in a telephone interview Oct. 12.

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