(SCMP) Japan overtakes China as the biggest creditor to the US, as Japan’s June Treasuries holdings jump to a 30-month high

(SCMP)

  • Japan increased its holdings of US bonds, bills and notes by US$21.9 billion to US$1.12 trillion, the highest level in more than two and half years
  • China’s ownership rose for the first time in four months to US$1.11 trillion, up by US$2.3 billion
A yen note is seen in this illustration photo taken June 1, 2017. Photo: REUTERS

A yen note is seen in this illustration photo taken June 1, 2017. Photo: REUTERS

Japan surpassed China in June as the top holder of US Treasuries as the trade war between the world’s two largest economies intensified.

Japan increased its holdings of US bonds, bills and notes by US$21.9 billion to US$1.12 trillion, the highest level in more than two and half years, according to data released by the Treasury Department on Thursday. Meanwhile, China’s ownership rose for the first time in four months to US$1.11 trillion, up by US$2.3 billion.

The last time Japan held the position as America’s largest foreign creditor was May 2017. The nation has added more than US$100 billion worth of Treasuries at a fairly steady pace since October 2018. Treasuries have become more attractive as the globe’s pool of negative yielding debt grows, according to BMO Capital Markets.

While benchmark 10-year US yields have plunged to the lowest level since 2016 in recent months, the rate on 10-year Japanese government bonds is currently negative 0.23 per cent.

“The buying we have seen from Japanese investors is really a reflection of the globally low and negative yield environment,” said BMO strategist Ben Jeffery.

A cautious months-long calm in the US-China trade war was interrupted in May when talks between the two sides broke down. In June the US raised tariffs on US$200 billion of Chinese goods to 25 per cent from 10 per cent.

While Trump and Chinese leader Xi Jinping agreed to a ceasefire in late June, that only lasted about a month before the US president announced that on September 1 he’ll impose a 10 per cent levy on virtually every import from China not yet subject to duties.

This week, Trump partially backed down by delaying the 10 per cent charge on certain items, including mobile phones and laptops, until December 15 to stem the impact on holiday shopping. Beijing says it still plans to retaliate.China’s US debt hoard has come under increased scrutiny in the trade dispute amid speculation that the Asian nation could sell Treasuries in response. Earlier this month, the US formally labelled China a currency manipulator after the yuan weakened past 7 yuan per dollar.