Political Bribe: Why Japan Becomes US Largest Lender

Against the backdrop of an unfolding trade war with South Korea, Japan has record-high purchases of US government bonds (treasuries). According to the United States Department of the Treasury, Tokyo's treasury investment reached its highest level since October 2016 and amounted to $ 1.12 trillion. As a result, the Asian country managed to overtake China in terms of investment and became the largest holder of the US public debt.

According to experts, the Japanese financial authorities took advantage of the conflict between Washington and Beijing. So, after strengthening the tariff confrontation with the United States, China began to withdraw its money from treasuries. In turn, Japan took an allied step and decided to compensate the States for the outflow of Chinese investment. About this in an interview with RT told MGIMO Associate Professor Kirill Koktysh.

“Japan strictly advances in the wake of American politics and demonstrates in all possible ways its loyalty and willingness to follow the rules that the United States offers. The Central Bank of Japan will pursue a pro-American policy, especially in the situation of the currency war of the USA and China, when the PRC, on the contrary, withdraws from American debt, ”the expert explained.

According to analysts, now, as the main creditor of the States, the Japanese side not only expects to receive higher profits from the ownership of treasuries, but also hopes for Washington’s political support in the dispute with South Korea.

Relations between Tokyo and Seoul escalated back in 2018. The Supreme Court of the Republic of Korea demanded that the Japanese company Nippon Steel & Sumitomo Metal pay four Koreans $ 89 thousand for the use of their forced labor during the Second World War. The Japanese rejected the claim of the neighboring state and appealed, but the Korean side rejected the petition and began the confiscation of Sumitomo Metal property.

In the summer of 2019, the Ministry of Economy, Trade and Industry of Japan announced the introduction of export restrictions on South Korea. Moreover, the department also informed about the decision to withdraw the republic from the list of “white countries” for which the supply of goods is carried out according to a simplified scheme. As suggested in Tokyo, South Korea could resell raw materials imported from Japan to the DPRK. Meanwhile, Seoul connects the measures introduced with the situation around Sumitomo Metal.

In response to Tokyo’s actions on August 14, the South Korean government initiated the process of removing Japan from the country's list of priority trading partners. At the same time, the head of the republic, Moon Jae-in, urged the Japanese authorities to abandon restrictions on Korea and not use trade as a weapon, reports TASS.

According to Kirill Koktysh, South Korea is trying to defend equal conditions for itself in cooperation with its eastern neighbor and is gradually losing the status of "junior partner" of Japan in the economic and political sense. At the same time, as the expert notes, Tokyo wants to maintain a dominant position in relations between the two countries and puts pressure on Seoul.

“Discriminatory relations remained in the military-political and economic terms. South Korea and Japan specialize in bringing innovative ideas to working technologies, but Koreans are already doing it faster and cheaper than the Japanese. Therefore, having achieved such economic results, Korea will want to consolidate success at the political level, ”Koktysh believes.

Against this background, the Japanese expect further growth of contradictions and try to enlist the support of an ally in the foreign trade dispute in advance. This was in an interview with RT told the head of the analytical department of the company "International Financial Center" Roman Blinov.

“The acquisition by Japan of a decent package of US Treasury bonds can be seen as a kind of political bribe. In this way, the Japanese give a signal of support for the United States from the bond market and expect Washington’s response in the process of a possible aggravation with South Korea, ”Blinov emphasized.

Vain contribution

However, record investments in US public debt are unlikely to prompt Washington to support Japan in a trade dispute. This was stated in an interview with RT by the head of the joint program of the Higher School of Economics and the Gyeonggi University “Economics and Politics in Asia” Denis Shcherbakov.

“History shows that the United States almost always relies on the winner, and in this trade war, Japan, apparently, has already lost. Ultimately, in the emerging confrontation, both economies will suffer, but the total damage to Japan will be higher, ”the expert believes.

According to him, the Korean business is already actively negotiating with non-Japanese suppliers of products that are subject to restrictions, and the government of the republic is working on a new package of sanctions against Japanese companies. In addition, an active Boycott of Japan company began in Korea itself: the population ceases to buy goods and services from a neighboring country.

“The flow of tourists from Korea to Japan has also significantly decreased. The republic’s airlines canceled flights, which leads to a reduction in not only Korean, but also Chinese tourist flow to Japan, which in many respects has so far been transited through Korea, ”Shcherbakov added.

It is noteworthy that South Korea, along with Japan, is also a political ally of the United States. Therefore, according to Kirill Koktysh, neither side will receive the support of the White House in the trade dispute. Moreover, according to the expert, Washington itself is interested in the further development of the dispute.

“Both countries are allies of the United States, both have American military bases, so the contradictions of Seoul and Tokyo are always beneficial to the States. Washington will stimulate competition between them, ”Koktysh concluded.