China-Japan-US-Treasury-holdings-chart

Japan is once again closing the gap between it and China as the world’s largest holder of US debt. Japan has increased its holdings up to $1.096 trillion this week moving closer to China’s holdings of $1.179 trillion.  Despite the February increase China’s total level of US debt holdings has fallen since record 2011 numbers. The news was reported by the Wall Street Journal’s Matt Phillips earlier today.

Japan increased its holdings by $13 billion in February while China’s increase measured $14.3 billion. Despite the increased level of US debt in the portfolios of the Asian countries the largest holder of US debt is still the Treasury itself which has been buying US debt aggressively in order to stimulate the economy using quantitative easing.

The central bank holds $1.665 trillion of its own bonds as a result of the instrument. That figure is still far ahead of other sovereign holdings.

Japan was the larger holder of the United States bonds up until 2008 when they were overtaken by China. China dropped a decent portion of the debt last year but appears to be building its reserves again.

As the Wall Street Journal reports the $14.3 billion increase may not show the entirety of China’s activity in the area. China does much of its buying of sovereign debts in other countries but the data only covers purchasing done on the Chinese mainland.

The United States issues debt with treasury bonds. As of March 2012 the total issue of debt stood at $15.589 trillion. Controversy over the level of increase in the total debt has government deficits have ran out of control in recent years with spending on wars and measures to save the economy in the wake of the 2008 financial crisis.

The deficit increased by $1 trillion, $1.9 trillion and $1.7 trillion in 2008, 2009 and 2010 respectively. The issue is certain to be a contentious one as the political atmosphere ramps up as the country slides toward a presidential election in November.

Much was made of the country’s sluggish response to the need to lift the debt ceiling last Summer. The controversial debate surrounding that necessary legislation was bitter and resulted in a close call for the nation signing the bill one day before the country was projected to defaulted.

The discussion over the issue will remain but China and Japan will continue to buy the bonds as they are issued as long as the country continues its recovery.