China sold a record amount of Japanese debt in August, snapping a seventh-straight month of purchases.
China cut Japanese debt holdings by a net 2.02 trillion yen ($24.5 billion), the Ministry of Finance said today in Tokyo, the biggest monthly sale in data going back to 2005. The larger nation bought a record 735.2 billion yen of Japanese debt in May and 1.04 trillion yen of the securities the following two months.
“Today’s ministry report suggests China had purchased yen- denominated assets not to diversify their foreign reserves but to temporary escape from the unstable financial situation in Europe,” Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo, wrote in a report today.
A sovereign credit crisis that prompted a $1 trillion bailout for indebted European nations in May and signs of a slowdown in the U.S. have driven gains in bonds and Japan’s currency as investors sought a refuge. The yen reached a 15-year high against the dollar yesterday. Yields on Japan’s 10-year note were near the least in seven years, while those on U.S. two-year debt at a record low.
The State Administration of Foreign Exchange, which manages China’s foreign-exchange reserves, didn’t immediately respond to a fax seeking comment.
China sold 2.03 trillion yen in short-term debt and bought 10.3 billion yen in long-term securities, today’s data showed. Previous months had shown increases in short maturity securities, and sales of bonds and notes.
World’s Biggest Reserve
“There’s a chance that China is holding onto proceeds from maturing short-term debt instead of reinvesting them,” said Junya Tanase, chief currency strategist in Tokyo at JPMorgan Chase Bank.
China, which passed Japan in the second quarter to become the second-biggest economy globally, almost tripled its holdings of South Korean government bonds in the first nine months of this year, a report from South Korea’s Financial Supervisory Service showed on Oct. 4. China has accumulated the world’s largest foreign reserves standing at $2.45 trillion yen as of June 30, data compiled by Bloomberg show.
Japan had 904 trillion yen in outstanding government bonds and borrowings as of June, according to Ministry of Finance data collected by Bloomberg. The nation sold 2.2 trillion yen in 10- year bonds yesterday in a monthly auction, exceeding the figure for China’s sales in August.
About 95 percent of Japan’s debt is held domestically, which credit rating agencies have said supports the country’s creditworthiness even as borrowings approach 200 percent of gross domestic product.
Japanese Finance Minister Yoshihiko Noda suggested at a meeting last month that it’s inappropriate for China to buy Japan’s bonds without a reciprocal ability for Japanese to invest in China’s market.
The U.K. was the largest buyer of Japanese bonds in August, with net purchases totaling 3.5 trillion yen, ministry data showed. China was the biggest seller among countries.
“China may have taken a pause, but I don’t think it changed its stance toward Japan’s policy and debt,” said Akito Fukunaga, chief rates strategist in Tokyo at Royal Bank of Scotland Group Plc., Britain’s biggest government-owned bank. “I expect them to keep buying Japanese debt bit by bit, as its foreign reserves have expanded a lot.”
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