Japan warns US of shutdown’s effect on world economy

The US government shutdown and political impasse over its debt ceiling could have grave implications on the global economy if not immediately resolved, Japan’s finance minister warned.

Following a cabinet meeting in Tokyo, Taro Aso aired Japan’s increasing concerns that the deadlock would lead to a default, putting at stake trillions of dollars of investments in US Treasury bonds.

“The US must avoid a situation where it cannot pay, and its triple-A ranking plunges all of a sudden,” Aso was quoted as saying by Reuters. “The US must be fully aware that if that happens, the US would fall into fiscal crisis.”

The finance minister’s remarks echoed similar warnings from Chinese Deputy Finance Minister Zhu Guangyao, saying that the US had the “responsibility” to avoid a debt crisis.

China and Japan, the biggest foreign creditors of the US, together hold more than $2.4 trillion in US Treasury bonds. As of July 31, China held $1.28 trillion while Japan held $1.14 trillion, according to Treasury Department data.

The political standoff, which closed much of the US federal government, entered its second week after Republicans in the House of Representatives refused to increase the $16.7 trillion debt ceiling as they seek changes in President Barack Obama’s signature healthcare law.

The US Treasury said it would hit the debt ceiling by October 17, at which time it would have only around $30 billion in incoming revenues to pay the government’s bills, leaving the nation on the edge of default, Reuters reports.

For Japan, the current paralysis in Washington could also diminish US presence in the Asia-Pacific region amid China’s rise and aggressiveness in claiming contested territories.

Days after the two nations agreed to reinforce their defense alliance, the US was forced to cancel a joint military exercise amid the fiscal standoff.

“This is the only case that has been affected but if cancellations continue on other events, the impact would be substantial,” a spokesman for Japan’s Defence Ministry said.

By Maesie Bertumen

Image from the Lincoln Memorial in Washington, DC: Rich Renomeron/Flickr

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