Japan to increase holding of US assets
by Rebecca Wilder
Japan to increase holding of US assets
Here’s one that was tucked away in the Financial Times, Japan Post Bank urged to diversify holdings. With all of the talk about China, its currency, and the question of the Chinese “financing the U.S. deficit”, the media always forgets about Japan!
From the FT:
One of the largest buyers of Japanese government bonds is under pressure to diversify its holdings in a move that will reverberate throughout the huge JGB market.
Shizuka Kamei, Japanese financial services minister, said on Monday that Japan Post Bank should diversify its investments into US Treasuries and corporate bonds in an effort to reduce the risks of over-concentration in JGBs.
A big shift by the postal bank away from JGBs could have unsettling implications for the market. Japan Post helped digest 45 per cent of the increase in outstanding JGBs between 2001 and 2007 and already holds about 24 per cent of outstanding JGBs, according to Ruixue Xu, rates strategist at Royal Bank of Scotland in Tokyo.
However, analysts do not expect Japan Post to shift away from JGBs immediately.
Although it has attempted to expand lending since it was privatised in 2007, Japan Post has largely failed to make inroads in new businesses and remains dependent on buying JGBs.
Japan Post Bank – one of four government companies that was scheduled for an IPO offer, but to my knowledge that has been stalled – holds ¥176,990.8bn in deposits, or $US1.96tn, and the equivalent of $US2.2tn in total assets. That rivals Bank of America, the US’ largest bank holding company by assets.
Who’s going to purchase Treasury bonds? That’s right, Japan (at least the very large Japan Post Bank, in this case): the largest foreign holder of US assets at 12.11% of the total (see above chart).
The disclaimer at the end of the FT article (in bold) is important – banks are sitting on quite a bit of reserves, and purchasing JGB’s creates a very safe and clean balance sheet on which to sit. However, it is very interesting that the government is pushing US bonds. Why not German?
And the chart of the day: Japan’s 5-yr CDS is 113% higher than in Q4 2009. In fact, the G3, Japan, the US, and Germany, are all seeing heightened CDS spreads.
Debt is on the mind. Rebecca Wilder with Newsneconomics
We’ve reached a point where we’re reasonable comfortable with owing money to Japanese people. As far as most people are concerned, they’re kinda like the British but they speak a funnier language. That is, both the Brits and the Japanese share a reasonable number of traits with us and are “on our side.”
China… well, to use GW’s term, is a strategic competitor. We’re not happy owing them money, but we’re not willing to live within our means either.
Beggars can’t be choosers. And for now, we’re the beggars. (That can change.)
china — japan — gcc:
While the Gulf’s holdings of U.S. assets pale in comparison to China’s, the GCC possesses the largest trove of US stocks among foreign governments. With most of its assets managed by the central bank, Saudi Arabia likely holds the most US treasury bonds. The other GCC countries, most of whom entrusted their oil windfall (and gas in Qatar’s case) to an array of investment funds, tend to have a more diversified portfolio. However, the U.S. dollar still dominates the Gulf’s foreign asset position.
The foreign assets of GCC central banks and sovereign funds are estimated to have fallen to just over $1.1 trillion at the end of June 2009 from about $1.2 trillion at the end of 2008. This estimate draws on a methodology Brad Setser and I created last year, which estimates the inflows to the funds, and assumes similar performance to benchmark indices for each asset class. This estimate though, is somewhat lower than some other prevailing estimates. Recently released analysis by McKinsey Global Institutes suggests that Sovereign investors of the GCC, one of their ‘new power brokers’ managed closer to $2 trillion at the end of 2008.