China increases holdings of Japanese government bonds

16:11, August 13, 2010      

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Along with the fall of the U.S. dollar and the rise of the Japanese yen in the foreign exchange markets, China has bought more Japanese yen and euro assets. In June, China largely increased its holdings of Japanese government bonds worth about 5.3 billion U.S. dollars. Since 2010, China has cumulatively bought 20 billion U.S. dollars of Japanese yen financial assets, nearly five times the amount bought in the past five years.

China currently has 2 trillion-plus U.S. dollars in foreign exchange reserves, most of which are U.S. dollar assets. Many experts are worried about holding too much U.S. debt.

"China increasing its holdings of Japanese yen assets is like killing two birds with one stone." Chen Gong, chief economic analyst of Pong Advisory, said, "First, it can help the diversification of foreign exchange reserves. Reducing holdings on U.S. debt when U.S. government bonds are on the rise, and then buying Japanese government bonds when its economy is in deflation. The timing is perfect. Second, it can help achieve the situation of the value of the yuan falling against the major currencies except for the U.S. dollar for a short time, which will steady exports."

After the global financial crisis, the U.S. dollar and Japanese yen were seen as the haven currency and once rose and fell at the same time. However, their trends have differed since 2010.

Along with the large fall of U.S. government bond yields, the dollar-yen exchange rates dropped sharply and reached the lowest in the past 10 months. Since the U.S. government bond yields still remained at a rather low level, market traders technically analyzed that there is no sign that the dollar-yen exchange rates have hit bottom, and if it keeps falling, the Japanese yen will reach a new 15-year high.

By People's Daily Online
Additional support provided by LOTO


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