EconoChina

A blog on Chinese economy & society

China buying more JGB

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In an attempt to diversify from the USD, China bought more JGB in June.

China purchased a net 456.4 billion yen ($5.3 billion) of Japanese debt in June, following net buying of 735.2 billion yen in May that was the most in records dating from 2005, according to a report released today by the Ministry of Finance in Tokyo.

This is expected as the nation switched to a soft peg referencing to a basket of currencies.  Although Japan is the 4th largest export market of China, making up about 10% of its exports, the trade is more or less balanced. As such China’s trade surplus against Japan was only about USD20bn in 2009.

Since China has so far bought about USD20bn JGB this year, has it used up its quota then? Not likely. China has been under-weighting JGB in its reserves since 2006. If China does indeed intent to bring its currency to be trade weighted, there’ll be more JGB to buy, at the expense of US Treasuries naturally.

A side effect of buying more JGB is pushing up the Yen and Japanese Finance Minister Yoshihiko Noda commented yesterday that he’s watching the matter. But this may be a price that Japan has to paid, as it becomes increasingly relying on foreign lenders. Savings rate tumbled in  to a mere 2.2% in 2007 from 11.4% of a decade earlier, as economic stagnation and an aging population takes it toll.

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Written by Cindy Luk

August 10, 2010 at 4:00 am

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