China continues buying Japanese government debts

09:29, August 09, 2010      

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China continued to buy Japanese government bonds in June, possibly because the U.S. dollars and the euro became more volatile on the global exchange market.

Beijing purchased a net 457 billion yen (US$5.3 billion) of Japanese government debt in June, extending a record buying spree of Japan's bonds seen since the start of the year, a report released by Japan's Finance Ministry said. In May, China bought a net 695 billion yen of short-term Japanese debt.

The dollar's slide against all major currencies since June has reduced the attractiveness of U.S. assets for investors. The recent surge in Japanese bond investment by Chinese investors has stirred talk that China may be diversifying its foreign reserves into the yen and away from the euro and the U.S. dollar.

"China may want to diversify risks in its foreign reserves," Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo said. "It may prefer yen assets as it wouldn't want the drop in the dollar to erode the value of its assets."

At $2.45 trillion, China's foreign-exchange reserves are the world's largest. It held $867.7 billion of U.S. Treasuries at the end of May, down from $900.2 billion in April.

Japanese Finance Minister Yoshihiko Noda said last month that China's purchases of yen assets are welcome given policy makers' efforts to diversify the investor base of bonds.

About 95 percent of Japan's debt is held domestically, which sovereign-debt agencies have said supports the country's creditworthiness even as borrowings approach 200 percent of its gross domestic product.

Source: People's Daily Online


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