This has been a rumor going around for awhile now.  It is logical to think that with the U.S. dollar in such precipitous decline that large Treasury holders like Japan and China would want to diversify out of this large positions.  The problem is of course that if anyone figures out this is your move then everyone heads to the door and that would create a panic and that would speed up the decline and reduce the value of their holders which is not in their national interest.

Recently, in the last couple days, we have seen the dollar strengthen quite a bit on some comments from the Federal Reserve Chairman about “strong headwinds” ahead of us and the threat of deflation is not behind us.  This is correct because we still have a massive amount of debt in the system that needs to be either serviced or defaulted and many institutions have this one their balance-sheets or off-balance-sheet and that makes these companies vulnerable.

Speculation that the Japanese government plans to sell $100 billion of U.S. Treasury debt to pay for domestic spending may impede the Obama administration’s borrowing plans.

Japan has been this year’s biggest buyer of Treasuries, which means it has done more to help finance the widening U.S. budget deficit than any other country. Its holdings have risen by $125.5 billion, according to data compiled by the Treasury. The comparable figure for China, which surpassed Japan last year as the largest international investor in the securities, is $71.5 billion — 43 percent lower.

Japan will inform the U.S. about the possible $100 billion sale, according to a Market News International report yesterday that cited “rumors” from unnamed sources.

“There’s absolutely no such proposal right now,” Chief Cabinet Secretary Hirofumi Hirano told reporters today in Tokyo. “That kind of talk often surfaces at this season.”

Analysis: 2010 will be a very tell-tale year for the U.S. and Global economy.  The risk of another recession is still a major threat and unless we get unemployment down by having private businesses to start hiring so we can get real income produced in the economy.