The latest report on foreign holdings of U.S. government debt reveals that an important shift is likely to take place in 2013: Japan is about to become the largest investor in Treasury debt, replacing China in the top spot.
During the past year, China's position in U.S. Treasuries fell 7.5% to $1.16 trillion, while Japan's holdings rose 12.8% to $1.13 trillion. This leaves Japan $26.8 billion behind China, and makes it highly likely that the country will become the largest investor in U.S. debt in the second half of next year. If that proves to be the case, it will likely allay some of the concern that China's substantial position in Treasuries gives it too much power over the United States. In addition, Japan's buying has helped offset any selling pressure that may have been caused by China reducing its position. However, it doesn't change the underlying problem: the total U.S. debt now stands at $16.4 trillion - or $52,504 for every man, woman, and child in the country. It also puts the U.S. debt- to-GDP ratio at 102.9%, fifth-worst in the world and behind only the most troubled nations: Japan, Greece, Ireland, and Italy.