It's estimated that Japan's earthquake/tsunami/nuclear disaster will cost as much as $235 billion and five years to rebuild. Japan is the second largest owner of U.S. Treasuries. Japan's debt level is twice as high as its annual economic output. If it does sell Treasuries, interest rates could go higher...at a time when the U.S. housing market can least afford it.
However, this is unlikely. That's because the largest holders of Japanese debt are its people. If Japan needs cash, people in the undamaged portion of Japan will put more into savings, giving the Japanese government the funds it needs to rebuild.
Even if Japan needs the cash, it would be unlikely to sell Treasuries. Japan needs the dollar higher so its currency, the yen, will be lower in value. This will help Japanese exports. This would be a bad time for the yen to rise, since shutdowns at many plants are limiting exports as it is. Japan's economy needs every export it can muster at this time.
Finally, Japan does not want to get into a currency war with the U.S. at this time. If Japan sells Treasuries, this could start a sell-off by China and other foreign holders. It would further complicate budget negotiations for U.S. legislators, who are faced with a $14 trillion federal debt, and the need to fund further budget deficits. Japan knows that a Treasury sell-off would make things difficult for its strongest ally -- at a time when Japan needs all the friends it can get.
Economic Impact of Energy Disasters
Economic Impact of Other Natural Disasters
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