Japan has been making massive purchases of U.S. treasuries, and it now holds almost as much American debt as China does. As reported recently in the Wall Street Journal, Japan now owns $1.039 trillion in US Federal debt. China has been selling Treasuries, but still holds $1.113 trillion worth.
There are a variety of factors for Japan preferring Treasuries over gold (GLD, quote).
Treasuries have been a better recent investment than gold. While the exchange traded fund for gold was up 20% over the last 52 weeks, the iPath US Treasury Long Bond Bull (DLBL, quote), rose more than 45%.
Japan also wants to lower the value of the yen (YCL, quote) by buying dollar-denominated assets. The more capital that flows into the US dollar in its role as a safe haven asset, the less goes into yen assets. Due to the Eurozone crisis, there is much more capital seeking a secure investment, which is the major reason why Treasuries have risen in value.
As detailed in a recent article on www.emergingmoney.com, the strong yen is hurting companies from the island nation such as Canon (CAJ, quote) and Fuji (FUJIY, quote). If the Greenback is stronger and the yen weaker, Japanese goods will be cheaper for Americans to buy. This is also why Japan is working so hard to have the yuan accepted as a reserve currency. When the yuan rises in value, Japanese exports to China will be cheaper; and those from the People’s Republic will be costlier for consumers around the globe.