The Roles of China and Japan in Filling America's Fiscal Deficit

America's fiscal deficit is inevitably ballooning to the trillion-dollar mark in fiscal year 2009. Ultimately, a deficit-ridden America has no choice but to rely on foreign countries to continue purchasing its Treasury bonds. China is the largest purchaser of U.S. Treasuries, currently holding approximately $600 billion, with Japan as the second-largest purchaser at nearly the same level. In 2004, Japan's purchases swelled to $700 billion. This amounts to a staggering ¥70 trillion when converted to Japanese yen.
Recently, a small nation in Central and South America defaulted on both the principal and interest of its national bonds, rendering its debt certificates worthless. The country went bankrupt.
While it's unthinkable that U.S. Treasury bonds (debt certificates) would become scrap paper, it is a somewhat concerning prospect.

Liquidate Some Holdings to Supplement Japan's Fiscal Deficit

Meanwhile, Japan's own finances are mired in deficits, and the government is struggling to manage its budget.
Given that this situation is likely to persist for a long time, there are simple voices suggesting that Japan should liquidate some of its approximately ¥70 trillion in U.S. Treasuries to cover a few trillion yen of its own deficit.
I therefore directly asked Mr. K, a prominent diplomatic commentator who served as ambassador to the U.S. for many years, and Mr. K, a leading figure in the Democratic Party. Both Mr. K's responses were remarkably similar, characterized by thoughtfulness and a consideration for America.

The Cautious Responses of Two Prominent Figures and Japan's Position

Mr. K, the former ambassador to the U.S., stated, "I fully understand the idea of liquidating some U.S. Treasuries to supplement Japan's finances, but considering the current Japan-U.S. relationship, I don't think the Japanese government could propose it." Mr. K, the Democratic Party executive, responded, "If we were to sell a large quantity of dollars and convert them to yen, it would lead to a weaker dollar and a stronger yen. I think it would be quite difficult. We must also consider America's perspective..."
What struck me about both Mr. K's responses was their deference to the United States, a level of concern that exceeded my expectations.
I believe the entire nation, and those with an interest in the matter, should consider whether it is truly advisable for the government, the Bank of Japan, and Japanese financial institutions to continue purchasing U.S. Treasuries without careful deliberation.