It is not just the Chinese making noises about the reliability of the United States as a debtor. Now, Japanese politicians are doing it too. In fact, the Democratic Party of Japan (which is not in power) have said they would not buy U.S. bonds if elected. An excerpt from a BBC story covering these comments reads as follows:
Japan’s opposition party says it would refuse to buy American government bonds denominated in US dollars, if elected.
The chief finance spokesman of the Democratic Party of Japan, Masaharu Nakagawa, told the BBC he was worried about the future value of the dollar.
Japan has been a major buyer of US government bonds, helping the US finance its Federal budget deficits.
But, he added, it would continue to buy bonds only if they were denominated in yen – the so-called samurai bonds.
“If it’s [in] yen, it’s going to be all right,” Mr Nakagawa said in an interview with the BBC World Service.
“We propose that we would buy [the US bonds], but it’s yen, not dollar.”
However observers say that, while the move would be a remarkable policy shift, it was unlikely that Mr Nakagawa’s party will win the forthcoming election, due before mid-September, despite the unpopularity of the ruling Liberal party.
While the Democratic Party is unlikely to gain sway over the electorate in Japan, their comments do reflect a growing unease with the United States’ deficit spending. With dissatisfied noises coming from America’s two largest creditors, the Obama Administration’s policy options for continued reflation appear more limited. In essence, America can inflate and deficit spend at its own risk. Unfortunately, there are not very many other policy options available.
Originally published at Credit Writedowns and reproduced here with the author’s permission.