Japan eyes China's bond motives

Japanese Finance Minister Yoshihiko Noda said Thursday that the government was closely monitoring China's ramped-up buying of Japanese government debt and would check with Beijing on its motives.

"We are paying close attention" to recent increases in Chinesepurchases of Japanese government bonds (JGBs), Noda said, Dow Jones Newswires reported.

"I feel strange that China can buy Japanese government bonds while Japan can't buy theirs," Noda said. "I don't know the true intention" of China regarding its growing appetite for JGBs. But Tokyo plans to "closely cooperate (with Beijing) and examine its intentions."

China bought 583.1 billion yen ($6.9 billion) worth of Japanese bonds in July, Japan's finance ministry said Wednesday.

The figure was higher than the 456.7 billion yen ($5.5 billion) worth of securities purchased in June.

The news came after the yen hit a fresh 15-year high against the dollar Wednesday. Currency traders say China's buying of yen-denominated assets, while too small on its own to sharply push up the yen, could be bolstering the currency indirectly.

China has sought to diversify its vast investments away from the dollar and Europe since the onset of the financial crisis.

"China always follows the principle of ensuring safety, liquidity and good value in managing its foreign exchange reserve and is gradually implementing the strategy of diversification in this regard," Jiang Yu, a spokeswoman at China's foreign ministry, told reporters in Beijing Thursday. "We will decide whether to buy one country's bonds according to our own needs."

The increase coincides with renewed doubts about the recovery in the US and Europe and indicates that countries are putting more of their ballooning foreign exchange reserves into relatively stable Japanese bonds as a result, analysts say.

China is not alone in increasing its yen holdings. The UK has increased net yen assets in the three months to July by about 1 trillion yen ($11.9 billion), according to Tohru Sasaki, a foreign exchange strategist at JP Morgan, the Financial Times reported.

Zuo Xiaolei, chief economist at China Galaxy Securities, told the Global Times that despite the increase in China's purchase of Japanese bonds, China still holds a very small part of Japan's total debt.

"The majority of Japan's debt is held domestically, and there is a huge amount of speculative capital flowing to the Japanese yen," Zuo said. "So the Japanese bonds bought by China are unlikely to result in the appreciation of Japan's currency against the dollar."

Source: Global Times