Biggest US Foreign Creditors Show Concern on Default Risk
By Keiko Ujikane - Oct 8, 2013
China and Japan, which together hold more than $2.4 trillion in U.S. Treasuries, raised pressure on the U.S. to resolve a political impasse on its debt ceiling that threatens to destabilize global financial markets.
Japan must consider the impact of any default on its bond holdings, even as the U.S. will probably avoid a fiscal crisis, Japanese Finance Minister Taro Aso said today in Tokyo. Chinese Deputy Finance Minister Zhu Guangyao said yesterday that the U.S. should prevent a default, the People’s Daily reported.
Any failure by the U.S. to honor its debt obligations would damage the dollar’s status as the world’s reserve currency. A shift in asset allocation by China, Japan or other major holders of Treasuries could push up U.S. interest rates and cause swings in global currency markets.
“If a default on U.S. debt occurs, there will be a huge impact on markets,” said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co. in Tokyo. “In the long run, some nations could review the allocation of their foreign reserves and shift to a better-balanced portfolio.”
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http://www.bloomberg.com/news/2013-10-08/japan-aso-warns-on-effect-of-any-u-s-default-on-reserves-value.html
