Tuesday, May 3, 2011

Impact of the Japanese Earthquake on US Treasury Bills

Will  the natural disaster  bring Japanese to sell out  their holdings of U.S Treasury bills?  Which will  lead to higher interest rates and therefore a fall in housing markets?  Historically, the Japanese are major buyers of U.S. debt since the beginning of 2010 and they are the top most too. With a good earning population and a high level of savings, the Japanese bought lots of US Treasury bills through their pension funds and insurance in particular.
    
      The Treasury bonds of United States hold by Japan is around 768.8 billion dollars, and Japan  is ahead China(755.4 Billion dollars) in 2010.After the disaster, it is necessary to rebuild the nation which  will become a first and foremost  priority for Japanese.

    
Following the massive damage that occurred in Japan due to the earthquake and tsunami, they will have to reconstruct their country. For the reconstruction they have to raise huge fund and The Japanese has to finance this reconstruction by selling the U.S. Treasury bonds they hold with them.  Selling Treasury bills could cause a financial collapse or at best to raise the rate at which the U.S. Treasury borrows.
    
For he will return more attractive to buyers. By rising interest rates on treasury bills, the bank will raise the interest rates, subsequently it will make difficult for investors and companies wanting to make money, threatening to raise unemployment and reduce business investment in the European countries. Higher rate of interest will show a heavy impact on real estate market and the hence real-estate market will be in down trend throughout the world.

     If the withdrawal of Japanese investments in U.S.  would take place, that would entail a high risk of rising interest rates and therefore higher rates of real estate financing that might make it impossible for many European countries and the borrowing will be minimum to the real estate purchase.  Perhaps the rise of oil with petro-dollars will offset the withdrawal of Japanese assets in U.S.?

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