China’s Japanese bond holding hits record high

China's holding of Japan's treasury bonds hit a historical high to reach 18 trillion Japanese yen ($231 billion) at the end of 2011, up 71 percent from the previous year, Japan's Nikkei newspaper reported yesterday, citing data from Japan's Ministry of Finance and Bank of Japan.

By the end of 2011, overseas institutional and individual investors held Japan's treasury bonds worth up to 92 trillion Japanese yen ($1.18 trillion), up 27 percent from a year earlier, the report said.

Of that, holdings of Japan's treasury bonds by Asian countries including China accounted for 31 percent, second only to the amount held by European countries.

China has increased its holding of Japan's treasury bonds since 2009 and overtook the US and UK to become the largest holder of the treasury bonds. Over the past two years, China's holding has increased by 520 percent, the report said.

"China has increased its holding of Japan's treasury bonds since last year amid concerns about the deepening EU debt crisis and weakening US economy," Zhao Xijun, deputy director of the Finance and Securities Research Institute at Renmin University of China, told the Global Times.

China's international balance of payments has long stood at surplus. The large amount of the newly increased foreign exchange reserves from the surplus has to be invested overseas each year, Zhao said.

"Compared to other currencies, the yen is relatively stable and has relatively high returns, therefore, is a good investment target," he said.

"The yen's value against the US dollar has continued to rise in recent years and such a trend may not be good for Japan's exporters but will benefit foreign investors. That explains the inflow of capital into the country," Feng Zhaokui, deputy director of the Chinese Society of Sino-Japanese Relations History, told the Global Times.

"It's a natural choice for China to increase its holding of Japan's treasury bonds. As the largest holder of the US treasury bonds, China needs to diversify its portfolio to avoid 'putting all eggs in one basket'," he said.

Japan's data came after the two nations kicked off direct yen-yuan trading Friday and China permitted Japan to buy its treasury bonds in March.

"China and Japan will continue to increase the ratio of holdings of each other's treasury bonds due to the increasing trade and financial cooperation between the two nations," Feng said.