| Foreign holders of US treasuries, June 1998 |
|
$ bn |
(%) |
| United Kingdom |
264.7 |
21.2 |
|
Japan |
264.1 |
21.2 |
|
Germany |
95.0 |
7.6 |
|
Opec countries |
49.8 |
4.0 |
|
Spain |
47.4 |
3.8 |
|
China |
45.2 |
3.6 |
|
Hong Kong |
39.5 |
3.2 |
|
Singapore |
34.7 |
2.8 |
|
Netherlands Antilles |
32.5 |
2.6 |
|
Taiwan |
30.9 |
2.5 |
|
Switzerland |
24.9 |
2.0 |
|
France |
22.1 |
1.8 |
|
Belgium/Luxembourg |
21.8 |
1.7 |
|
Mexico |
20.7 |
1.7 |
|
Canada |
13.0 |
1.0 |
|
Korea |
11.4 |
0.9 |
|
Thailand |
10.8 |
0.9 |
|
Others |
218.9 |
17.5 |
|
Total |
1247.4 |
100.0 |
| Source: US treasury department |
In an uncertain world, one thing is clear. Persistent rumours that a displeased or desperate Japan will cause financial mayhem by suddenly offloading its US government bond holdings is nonsense.
This possibility is so universally reject by informed market participants that it's hard to see how it ever gained any credibility.
"I don't think Japanese holders dumping US government paper is a valid scenario," says Kathy Matsuil, Goldman Sachs's chief strategist in Tokyo. "Japan still has to recycle its surplus somehow." In any case, she adds, "everybody's favourite asset class at present is foreign securities." Since most Japanese investors are not sophisticated enough to analyze foreign equities, this means fixed-interest securities, she says.
"There is no rational case for the Japanese to be expected to sell their US treasury bond holdings," says a London-based hedge fund manager. "Japan will continue to run a large current-account surplus and therefore the rational expectation is for Japanese financial institutions to continue to increase their claims on the US."
It was "the school of cheap journalism" that concocted the myth, says Richard Jerram, chief economist at ING Barings in Tokyo. The facts don't fit, let alone the interpretation. At $300 billion, Japan's combined holdings of US T-bills are little more than the UK's, he notes.
Jerram also points out that when Japanese entities do offload some of their US securities, as they did between November 1997 and February 1998, the market swallows them without a gulp.
The argument that the Japanese could hold a gun to the world's head by threatening to dump US treasuries had its origins in the mid-1980s when the US government was running large deficits and Japan was providing much of the funding. It seemed to get trotted out in periods of trade tension between the two countries.
If the myth was originally propagated by the Japanese themselves, it is a measure of the times that there is no attempt to revive it. Indeed the whole politico-economic relationship between Japan and the US has undergone a transformation.
It now appears that the US has given up on trying to help Japan save itself. Meanwhile as the yen falls Japanese investors' US government bonds are at last an appreciating asset. Jack Lowenstein