Japan becomes largest foreign government buyer of US debt

17 April 2015

Japan has become the largest foreign government buyer of US government debt, which should set at rest the talk of China somehow owning the US or possessing vast leverage over its foreign policy through its debt purchases, www.vox.com reported.

Though fears had earlier been voiced over China's strategy and plans, given the huge debt it owned, the apprehension was unfounded.

China was buying bonds to subsidise Chinese exporters and its debt-buying was a way of subsidising Chinese export industries, a central element to the "currency manipulation" US officials often complained about.

However, China's bond surge was over, with China moving on to a new era of slower growth and somewhat different political thinking about its desired path of development.

Its place had been taken by a rush of Japanese money which was coming from the Government Pension Investment Fund, which was like Japan's equivalent of US Social Security Trust Fund.

Meanwhile, Hank Paulson, the former treasury secretary who was steering the US economic policy when the most serious financial crisis since the Great Depression broke, said changes in US banking and government regulation since then had created a more stable system that had stronger ways to respond to the ups-and-downs of a market economy, USA Today reported.

He, however, warns in a new book, ''It's not a question of if, but when, China's financial system, particularly the trust companies, will face a reckoning and have to contend with a wave of credit losses and debt restructurings." However, he also expresses confidence that Beijing had the tools to manage that and avoid the sort of far-reaching crisis that hit the US in 2008.

"It is important that China stop its over-reliance on municipal debt to finance infrastructure," he said in an interview. "I take comfort in the fact that China's leaders understand this."

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