Reserve-rich Asia wary of U.S. debt debate but keeps buying

Reuters

By Tetsushi Kajimoto and Suvashree Dey Choudhury

TOKYO/MUMBAI (Reuters) - Asia's reserve-rich nations see no viable option but to keep on purchasing U.S. government debt despite their uneasiness about Washington's fraught political battle over public spending.

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Interviews with senior officials from four leading Asian economies -- including Japan and China, the two largest foreign holders of U.S. debt -- showed they were concerned that U.S. lawmakers would fail to authorize additional government borrowing before a $14.3 trillion debt limit is reached.

But they still considered U.S. Treasury debt the safest bet, particularly with so much uncertainty surrounding Europe's sovereign debt situation.

None of the Asian officials interviewed by Reuters said their reserve investment plans would change right away, even if the U.S. Congress does not raise the debt ceiling this week. The debt limit is expected to be reached on Monday, and the Obama administration has warned of "catastrophic" consequences if the government cannot pay its bills.

"Our stance remains unchanged on foreign reserves management," Japan's Deputy Finance Minister, Fumihiko Igarashi, told Reuters.

"The U.S. is making the most of having the dollar as key reserve currency and such a situation would not change immediately," he said. "But nothing will last forever, as with any political and economic conditions. We will closely watch developments" in Congress.

Igarashi said Japan should aim to diversify its reserves to reduce Treasuries exposure, perhaps by increasing gold holdings or raising the percentage invested in euro assets. But he acknowledged that a portfolio shift would be "quite difficult... because selling Treasuries would hurt our own assets." (Additional reporting by Choonsik Yoo in Seoul, and Zhou Xin and Kevin Yao in Beijing; Writing by Emily Kaiser; Editing by Vidya Ranganathan)

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