Monday Business : Japan Reportedly May Sell U.S. Bonds

Japan’s governing party plans to look into selling some of the government’s holdings of U.S. Treasury bonds to help Japanese banks that are having trouble obtaining dollars, media reports said Sunday.

Concerns about their financial health have made it harder for Japanese banks to raise funds in overseas markets in other ways.

Nikkei News and Kyodo News agency quoted officials of the Liberal Democratic Party, including Taku Yamasaki, chairman of its policy affairs research council, as saying dollars raised by selling Treasury bonds could initially be deposited at Japanese banks.

A substantial amount of Japan’s foreign reserves, which stood at $228 billion at the end of November, are invested in U.S. Treasury bonds.

Some U.S. analysts fear that significant sales of Treasury bonds by Asian countries could cut demand and thus push bond prices lower, which would raise interest rates. Also, such sales could weaken the dollar against the yen. However, others have noted, some of the dollars raised by such sales indirectly could end up being used by the banks or their customers to buy and hold Treasury bonds anyway.

Yamasaki noted that casual comments by Prime Minister Ryutaro Hashimoto earlier this year about Japan selling U.S. Treasury bonds had pushed the dollar down steeply against the yen.

But Kyodo quoted Yamasaki as saying that because of the dollar’s recent strength, selling some of the bonds would have little impact on exchange rates. The dollar is at 5 1/2-year highs against the yen, and closed at 130.20 yen on Friday.

Both Nikkei and Kyodo quoted Yamasaki as saying, “I think an exchange rate of 120 yen to the dollar is an appropriate level.”

The reports said the Liberal Democrats are likely to include U.S. bond sales in policy proposals this month to aid the financial system.