Japan’s finance minister pressed the US on Tuesday to quickly resolve its political deadlock over government finances to avoid a fiscal crisis that could damage the global economy.
The comment from Taro Aso is the latest sign that Japan and China — the biggest foreign creditors to the US — are increasingly worried that the US government shutdown and the standoff over the debt ceiling could wreak havoc on their trillions of dollars of investments in US treasury bonds.
“The US must avoid a situation where it cannot pay (for its debt) and its triple-A ranking plunges all of a sudden,” Aso said after a cabinet meeting.
“The US must be fully aware that if that happens the US would fall into fiscal crisis,” he said.
Japanese officials held several telephone conferences with US treasury department officials on Monday, Japan’s Nikkei newspaper reported, citing unnamed sources. However, a senior Japanese government official shrugged off the report, suggesting instead that the subject had only been discussed as part of regular contact between the countries.
On Monday, Chinese vice-finance minister Zhu Guangyao said Beijing had been in touch with Washington over the standoff, in which House Republicans have refused to increase the $16.7 trillion debt ceiling as they seek changes in President Barack Obama’s signature healthcare law. Unless Congress raises the debt ceiling, the US would be left on the edge of an unprecedented default, the treasury has warned.
The political standoff is in its second week, with much of the US 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.
As at July 31, China held $1.28 trillion in US treasury bonds and Japan held $1.14 trillion, treasury department data shows.
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 US fiscal cliff,” Zhu told reporters, saying it was