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China sets new record investment in Japan bonds amid euro crisis

2010-07-07 10:07

China has boosted its buying of Japanese government bonds this year, snapping up a net $6 billion of mostly short-term notes between January and April, double the record amount logged for all of 2005, Japanese finance ministry data showed on Tuesday.

Market players say the purchases do not represent a shift in China's long-term investment stance but more a short-term move to park funds in yen while sovereign debt concerns buffet the euro.

The euro has sunk more than 14 percent against the dollar this year, reflecting investor concerns over Europe's debt crisis.

"In general, when overseas central banks cannot hold European sovereign debt it makes sense for them to instead choose JGBs, which have high liquidity," said Atsushi Ito, a strategist at Morgan Stanley MUFJ Securities Japan.

"We already knew from other data that there has been overseas demand for JGBs with durations of less than a year. Short-term traders might react if China was among the buyers, but the overall impact on the bond market is limited."

Lead September 10-year Japanese government bond futures were little changed on Tuesday, down 0.07 point at 141.50.

Analysts say China has been shifting some of its $2.4 trillion in foreign exchange reserves -- the world's largest stockpile -- into a wider range of currencies in recent months, including assets elsewhere in Asia and in commodity-producing countries.

Roughly a quarter is estimated to be held in euro-denominated assets, primarily sovereign bonds, analysts say.

Of the 541 billion yen ($6 billion) of JGBs purchased by China in the first four months of this year, 517.7 billion yen consisted of debt maturing in less than a year and 23.4 billion yen was in medium- to long-term securities, the ministry data showed.

In April, China bought a net 197.8 billion yen of JGBs, the second-biggest after Britain among foreign buyers, the ministry said.

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