Wednesday, February 3, 2010

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 corpor
ate bonds in an effort to reduce the risks of over-concentration in JGBs.

and later..

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

3 comments:

  1. I guess the average American has reached a better comfort level with Japan holding American debt than with China doing it.

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  2. Hi Cactus (i.e., Angry Bear author), Thanks for coming by!

    Politically, it is more palatable. However, external debt is external debt. Japan wants to get paid just as much as China does.

    Honestly, though, this article at the FT does make me think about this whole "rebalancing" of the current account story (which I've written extensively about). The one thing that every EM country has learned through this crisis, is that one cannot have enough FX reserves....

    Rebecca

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  3. Good find/pie chart! Very vivid reminder for us. Cactus is right. maybe it just means that we, the people, are very used to other countries financing our debt now that 20 years ago. Smaller world...
    ps: congrats on the exam! aj

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