Japan to Overtake China as U.S. Creditor

For a while, China outpaced Japan as the largest buyer of Treasuries, making it the largest creditor of the U.S. in the world. But the balance seems about to tilt back the other way, as Japan has boosted its purchases even as China has cut back.

Bloomberg reported Tuesday that China has dialed back on its purchases of Treasuries. The most recent figures indicate that Chinese holdings of Treasuries have fallen in 2012 through July by 0.2% to $1.15 trillion. Japan, with its closer relationship with the U.S., has gone the other way, boosting its ownership by 5.6 % to $1.12 trillion. At that rate, by November, it will be the U.S.’ largest foreign creditor.

In September 2008, China overtook Japan as the largest foreign owner of U.S. Treasuries, scooping them up at a rate that alarmed politicians. In the process, Beijing froze its yuan at approximately 6.83 per dollar for close to two years. Buying dollars kept the yuan from rising in value and also enabled prices on China’s exports to remain lower. China then took those dollars, as well as other currencies it took in from sales around the world, and channeled them into U.S. bonds.