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Japan Set To Purchase $10.3B of China's Debt

"aimed at strengthening financial ties between the world's second and third largest economies."

Tokyo has been given the green light from Beijing to purchase $10.3 billion in Chinese government bonds, Japan's finance minister said Tuesday. But perhaps more interesting than the amount Tokyo intends to purchase is the fact that this is the first time China has allowed an advanced economy like Japan to buy its sovereign debt.

“The move is part of a broad package of financial agreements between China and Japan announced in December, aimed at strengthening financial ties between the world's second and third largest economies,” writes  The Wall Street Journal’s Takashi Nakamichi.

A deeper-rooted collaboration between the two trading partners could elevate the Chinese yuan's status as an international currency while simultaneously solving Japanese businesses' foreign-exchange issues with China.

On March 8, "we were told by Chinese authorities that we had received permission to buy (Chinese government bonds) worth 65 billion yuan, or about $10.3 billion," Jun Azumi said at a press conference.

"I think the amount is appropriate given that the goal of this step is to reinforce our bilateral economic relationship, such as by promoting the exchange of information between Japanese and Chinese authorities."

However, it could be months before the Japanese government begins purchasing Chinese government debt, Azumi said. He hinted that Tokyo will try its best not to affect the markets with this move.

"We need to consider market developments in determining the timing of purchases," he said.

"For the time being, I believe it is appropriate for us to start investing small amounts within that purchasing limit" using Japan's foreign currency reserves, he said.

It should be noted that China has a strict policy that requires all investors to seek permission from its central bank before any purchases of sovereign debt are made.

“China has been actively investing in Japanese government debt in an apparent bid to shift some of its foreign exchange reserves—the biggest in the world—into yen from the dollar due to risk aversion amid the ongoing European debt crisis,” Nakamichi writes.

One last thing…
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