Karmin, Craig. 2004. "Slowdown in Buying of Securities Reverses Trend and May Make It Harder to Finance Trade Deficit." Wall Street Journal (26 July): p. C 1. "Foreign purchases of securities in the U.S. in May came to $56.4 billion. While that was large enough to finance the current-account deficit, it was down 26% from April and represented the lowest monthly total in seven months. It also marked the fourth consecutive monthly decline of such purchases by foreigners. "May was the third consecutive month foreigners have been net sellers. That hadn't happened in nearly a decade." "Potentially more troubling was the slowdown in Asian purchases of U.S. debt -- especially in Japan, which holds 16% of all U.S. Treasurys. That country's nascent economic recovery has eased the government's concerns about maintaining a weak currency to boost exports, in turn reducing the Bank of Japan's need to intervene and buy dollars." "Japan bought $14.6 billion in U.S. Treasurys in May and $5.5 billion in April, according to the U.S. Treasury Department. That is a significant drop from a monthly average of $25 billion for the seven-month period ending in March. If the Japanese economy continues to rebound, Tokyo's Treasury purchases are unlikely to return to those lofty levels." "Japan is to the U.S. financial markets what Saudi Arabia is to the world oil markets -- the primary provider of capital," Joseph Quinlan, chief market strategist for Banc of America Capital Management, wrote in a recent report. "Self-sustained growth in Japan could ultimately obviate the need for the Bank of Japan to purchase U.S. securities, leaving a buying void in the U.S. Treasury market, helping to drive yields higher." "foreigners now control 40% of U.S. Treasury debt, and their purchases are unlikely to return to peak levels seen at the start of the year, she said. "So U.S. interest rates could still go higher, even if the current account is funded," Ms. McCaughrin [Rebecca McCaughrin, an economist for Morgan Stanley] said. "China, Asia's second-biggest buyer of U.S. securities, ... bought $13 billion in U.S. assets through May, compared with $33.1 billion a year earlier." "China was a net purchaser of $1.7 billion of U.S. Treasurys in the first five months of the year -- down 91% from the $18.4 billion in net purchases a year earlier." "Even the United Kingdom, long a reliable buyer of U.S. securities, turned negative in May, with net sales of $4 billion. That was its first monthly net sale since October 1998 during the near collapse of giant U.S. hedge fund Long-Term Capital Management and the aftermath of the Russia financial crisis." "Mr. Quinlan [Joseph Quinlan, chief market strategist for Banc of America Capital Management] argued that Japan has become "America's de facto banker, helping to keep U.S. interest rates low over the past year." Currency traders say the Bank of Japan hasn't intervened in the currency market since March, and the pace of Japanese Treasury buying of the recent past looks unsustainable: Japan bought $175 billion in U.S. Treasury debt from September to March, a figure that exceeds Japanese purchases of Treasurys in the previous seven years combined."
Michael Perelman Economics Department California State University michael at ecst.csuchico.edu Chico, CA 95929 530-898-5321 fax 530-898-5901
