Large foreign holdings of U.S. debt can pose a risk to the U.S. economy, but, so far at least, we have benefited. The "carry trade," borrowing undervalued currencies, mostly the Japanese Yen, and investing it in U.S. debt has been around for a long time. When the dollar is falling, why are Japan and China continuing to hold such large positions? The short answer is we are their largest customer, and they are struggling to hang on to their export business with us.
Japanese holdings of Treasury debt as of the end of February totaled $586.6 billion, down 5.8% from last June. China increased its holdings over the same period from $477.3 billion to $486.9 billion, a 2.0% increase. Considering the dollar has depreciated since then by 9.6% against the Yen and by 8.1% against the Yuan, that's quite a loss the Japanese and Chinese have suffered in the value of those holdings and of the interest income streams they yield.
