Japan larger buyer of US Treasuries than China

New York: With the Japanese government finally moving to check appreciation of its currency the US government can heave a sigh of relief as the world's third largest economy steps into the breach created by China which has begun diversifying its dollar holdings.

Tokyo will need to re-invest the dollars it has acquired in its bid to weaken the yen.

Japan was already a larger purchaser of US debt in recent times as a strong yen made Treasuries cheaper.

Up to June this year, China trimmed its overall holdings of US debt purchased directly by $51.1 billion to $843.7 billion, according to Treasury Department data. In the same period, Japan increased its holdings by $37.9 billion to $803.6 billion.

The gap between Chinese and Japanese holdings of Treasuries has narrowed sharply in 2010, to a mere $40.1 billion, which is 60% down over the margin of $129.1 billion prevailing at the start of the year.

China overhauled Japan as the largest owner of US debt in September 2008.

Market observers feel that China will probably continue to dominate US debt holdings in the long term, but the situation could change rapidly if Japanese intervention to weaken the yen becomes an ongoing affair. The yen will weaken only with purchase of large amount of dollars and as the dollars flow in they will need to be re-invested.

The last time Japan intervened in the market in 2003 and 2004 foreign bidding on Treasury auctions received a significant boost.