BEIJING/TOKYO, Oct 8 (Reuters) - China and Japan, the United States’ biggest creditors, are increasingly worried the U.S. government shutdown and standoff over the debt ceiling could wreak havoc on their trillions of dollars of investments in U.S. Treasury bonds.
Beijing and Tokyo have publicly called on the White House and Congress to resolve the dispute, which could threaten a U.S. debt default as soon as next week, and Asia’s two biggest economies are privately urging Washington to find a solution.
Japanese officials held several emergency telephone conferences with U.S. Treasury Department officials on Monday, Japan’s Nikkei newspaper reported, citing unnamed sources.
Tokyo urged the Americans to hammer out a deal to increase the debt ceiling or risk a default that could plunge financial markets into turmoil, the newspaper said on Tuesday.
Finance Minister Taro Aso on Tuesday said it was necessary to bear in mind the threat that the fiscal standoff posed to the value of U.S. bonds.
Similarly, Chinese Vice Finance Minister Zhu Guangyao said on Monday that Beijing had been in touch with Washington over the standoff, in which House Republicans have refused to increase the debt ceiling as they seek changes in President Barack Obama’s signature healthcare law.
The standoff is in its second week, with much of the U.S. federal government closed and no signs of a breakthrough, although some glimmers of hope emerged on Monday as Obama said he would accept a short-term increase in the nation’s borrowing authority to avoid a default.
The world’s biggest debtor and creditors are caught in a delicate balance that neither wants to disturb. As at July 31, China held $1.28 trillion in U.S. Treasury bonds and Japan held $1.14 trillion, according to Treasury Department data.
The last big confrontation over the debt ceiling, in August 2011, ended with an 11th-hour agreement under pressure from shaken markets and warnings of an economic catastrophe if a default were allowed to happen.
China is “naturally concerned about developments in the U.S. fiscal cliff,” Zhu told reporters, saying it was Washington’s “responsibility” to avoid a debt crisis and ensure the safety of Chinese investments.
Japan has previously expressed its concerns in diplomatic terms. Aso and Chief Cabinet Secretary Yoshihide Suga both said last week that the fiscal standoff was essentially a U.S. domestic problem.
But Aso added the shutdown could push up the yen against the dollar -- a concern for Japan’s export-reliant economy, which has benefited from a yen decline since Prime Minister Shinzo Abe won election in December on a reflationist policy platform.
Should the U.S. default on its debt, which the Treasury Department says could happen as soon as Oct. 17, “there would be a large international impact,” Aso said last week. “If there is no prompt resolution, various impacts will emerge.”
The yen has been rising this month as investors shed risk and seek the perceived safe haven of the Japanese currency. The dollar slipped on Tuesday to a two-month low of 96.55 yen.