<html> <head><style type ="text/css">body { font-family: "Bloomberg Prop Unicode I", Verdana, sans-serif; font-size:125%; letter-spacing: -0.3pt; color: #FF9F0F; background-color: #000000; text-align: left; } p {line-height: 1.25em; max-width:900px; width:expression(document.body.clientWidth > 900? "900px": "auto" );} h1, h2, h3 { text-align: left; font-weight: normal; color: #FFFFFF; } h1 { font-size: 130%; } h2 { font-size: 115%; } h3 { font-size: 100%; } #bb-style { font-size: 90%; max-width:900px; width:expression(document.body.clientWidth > 900? "900px": "auto" ); } b, strong { font-weight: bold; } i, em { color: #FEC54A; } pre { font-family: "Andale Mono", "Monaco", "Lucida Console"; letter-spacing: -0.3pt; line-height: 1.25em; } table { border: 0; font-size: 90%; width: 100%; margin-left: auto; margin-right: auto; } td, tr { text-align: left; } td.numeric { text-align: right; } a:link { color:#53B2F5; text-decoration: none; } a:visited {color:#53B2F5} a:active {color:#53B2F5} a:hover {color:#53B2F5} </style> </head> <body> <p>By William Pesek</p>&#xD; &#xD; <p>All the hubbub about China dumping its U.S. Treasuries ignores America's other big customer: Japan.</p>&#xD; &#xD; <p>There are good reasons why China won't go on a selling binge after Standard &amp; Poor&#x2019;s stripped the U.S. of its AAA rating. For one, the $1.17 trillion of U.S. debt China held as of June keeps the yuan from rising and protects exporters. For another, markets would panic if China gave up on the dollar and global interest rates would soar.</p>&#xD; &#xD; <p>Japan, however, could be the spoiler with its $911 billion stockpile of Treasuries. Unlike China, it may have a pressing need to turn its dollars into local currency. The bill for the March 11 earthquake, tsunami and still unfolding nuclear crisis will be several hundred billion dollars. And then there's the cost of reviving Japan's moribund economy amid a trio of disasters.</p>&#xD; &#xD; <p>There's a first-seller's benefit in Asia. By acting ahead of China, Japan could avoid big losses -- at least at first. News that Japan is swapping huge blocks of dollars for yen could wreak havoc and force China's hand. It's hard to exaggerate how such a trade would shake up world markets.</p>&#xD; &#xD; <p>Of course, there are good reasons why Japan would resist the urge. Nothing is more important to Tokyo than its post-war military and economic alliance with Washington. Pulling the plug on the dollar would perturb President Barack Obama and prompt frantic phone calls from Treasury Secretary Timothy Geithner and Secretary of State Hillary Clinton. And the already strong yen might surge to new highs.</p>&#xD; &#xD; <p>Some lawmakers in Tokyo are tiptoeing up to this most taboo of subjects. That's significant, considering politicians actively avoid speaking publicly about Japan's dollar hoard. Perhaps the most memorable episode was in June 1997, when then-Prime Minister Ryutaro Hashimoto told a Columbia University audience that &#x201C;several times in the past, we have been tempted to sell large lots of U.S. Treasuries.&#x201D; The dollar plunged within seconds, prompting energetic denials from Tokyo that any such considerations were afoot.</p>&#xD; &#xD; <p>Fourteen years later, Japan is beset with deflation, an aging population and a sudden need for cash to fund reconstruction efforts.</p>&#xD; &#xD; <p>It's unclear whether Tokyo will tap its dollar reserves. What is clear is that such a move would send shockwaves through the halls of power from Washington to Beijing.</p>&#xD; &#xD; <p>(William Pesek is a Bloomberg View columnist.)</p> </body> </html>