Money

China increases its holdings of Japanese debt

By Masaki Kondo (China Daily)
Updated: 2010-12-09 10:11

TOKYO - China bought a net 262.5 billion yen ($3.1 billion) of Japanese bonds in October, the first time in three months the nation increased holdings of yen-denominated assets as that currency outperformed the dollar and euro.

China purchased a net 231.9 billion yen in short-term Japanese debt and 30.6 billion yen in long-term bonds, Japan's Ministry of Finance said in a statement on Wednesday.

China increased holdings of South Korean government bonds in November by the most in six months, taking advantage of a retreat in the won, according to data released two days ago by South Korea's Financial Supervisory Service.

"With a risk of the dollar's depreciation and the current instability in the financial market and the euro, China is likely to be diversifying its portfolio steadily," said Satoru Ogasawara, vice-president of economics research in Tokyo at Credit Suisse Group AG. "The dollar probably makes up of 90 percent of China's foreign-exchange reserves."

The yen was the biggest gainer versus the dollar and euro this year among the world's most-traded major currencies. Chinese central bank adviser Li Daokui said last month in an interview that Beijing can consider selling Treasuries as a way to seek compensation for losses caused to its foreign exchange investments by the US decision to undertake so-called quantitative easing.

Treasuries handed investors a 0.7 percent loss last month, the steepest decline since March, according to Bank of America Merrill Lynch data.

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China is considering allocating more of its $2.65 trillion foreign exchange reserves to emerging-market currencies to boost returns, People's Bank of China Governor Zhou Xiaochuan said in October. The nation's holdings of US Treasuries fell 1.3 percent in the first nine months of this year to $883.5 billion.

China's net purchases of South Korean Treasury bonds amounted to 556 billion won ($487 million), 27 percent more than in October, according to data released on Monday by South Korea's Financial Supervisory Service. Total holdings increased 9.9 percent to 6.14 trillion won, more than triple the level at the start of 2010. The won's slide of about 3 percent versus the dollar in November marked its biggest decline since May.

"China probably aims for gains from currencies, not from returns from debt," said Ayako Sera, who helps oversee about $310 billion in Tokyo as a strategist at Sumitomo Trust & Banking Co. "It seems China bought Japanese debt just for now because the dollar and euro are weak."

The yen climbed to 80.22 per dollar on Nov 1, the highest since April 1995. It traded at 83.65 as of 11:08 am in Tokyo on Wednesday.

Japan's benchmark 10-year yields sank to a seven-year low of 0.82 percent on Oct 6, a day after the Bank of Japan cut its key interest rate to a range of zero to 0.1 percent and announced the creation of a 5 trillion-yen fund to buy domestic debt. The yield was at 1.205 percent on Wednesday.

Bloomberg News