Japanese Cut Buying of U.S. Dollar Securities; Move Could Fuel U.S. Inflation, Weaken Dollar
Japanese investors are reducing their purchases of dollar-denominated securities because of the weaker dollar, an interest-rate environment they see as less favorable, and apparent pressure from the Japanese government.</br></br>According to interviews with Japanese institutional investors and U.S. securities traders, Japanese investors have been focusing more on yen-denominated securities in recent weeks. Some U.S. traders report that Japanese banks actually have been net sellers of U.S. government securities in the past few days.</br></br>The reduced enthusiasm for dollar investments, which had been expected by many analysts, eventually could have a significant impact on U.S. interest rates, the financing of the U.S. budget deficit, and inflation. Over the past four years, the strong Japanese appetite for dollar securities has helped the U.S. finance its massive budget deficits without a sharp rise in interest rates. Japanese purchases also have helped keep the dollar strong, which in turn helped keep inflation moderate.</br></br>The Japanese role in financing the U.S. budget deficit was highlighted yesterday by the Treasury's auction of $4.76 billion in 19-year, nine-month bonds. Japanese purchases of Treasury securities have primarily been concentrated in such long-term issues. Dealers said Japanese buyers bought in yesterday's auction, but at much lower levels than previously.</br></br>Yesterday's sale was the last leg of a three-stage sale of $17.75 billion of new securities. There was no shortage of buyers on Tuesday and Wednesday, but analysts note the Treasury was selling issues with maturities of less than seven years, a market the Japanese haven't been very active in.