Japan Surpasses China as Biggest US Creditor
Japan has overtaken China as the country's holdings of the US Treasuries touch $1.13 trillion mark. China, in contrast, now holds $1.12 trillion in US government treasuries, the lowest holdings level for China in over six years.
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According to a monthly Treasury Department report, Japan's holdings declined at a lower rate than Chinese holdings. In the month of October, Chinese holdings dropped by $41.3 billion, while Japan's holdings declined by $4.5 billion. This is the third consecutive month of decline in Japan holdings, while China's holdings declined for the straight fifth month.
The month of October saw international investors selling $63.5 billion worth of US treasuries. During the past 12 months through October, foreign investors sold over $400 billion in US treasuries. China accounted for $140 billion of such selling.
The news is likely to put further pressure on the US markets. Ian Lyngen and Aaron Kohli, a team of fixed income strategists at BMO Capital Markets, said "Flagging foreign sponsorship for U.S. Treasuries remains the No. 2 concern for investors we speak with, No. 1 is whether Trumponomics ultimately will lead to reflation and growth."
US economy is highly dependent on foreign investments in its treasuries. Such investments help the country in running budgets with large deficits by keeping a check on interest rates. It is believed that China sold its holding to provide a cushion to the flagging value of Yuan.
Japan and China combined hold over 35 percent of US treasuries. The increased volume of selling may prompt Fed to step in to control the market.