China bought 640.8 billion yen of Japanese government debt in July, bringing its total purchases so far this year to a record high.
The nation still has room to buy a lot more even, given that A) it’s already a record, but the year isn’t over and B) it’s mix of Japanese debt for its foreign exchange reserve portfolio remains puny relative to its holdings of dollar and euro-denominated debt.
Its total net buying of Japanese debt has risen to about 2.3 trillion yen so far this year – a record since data started to be kept in 2005.
The market expects more Japanese debt to be bought as China diversifies its foreign reserves allocation.
China’s mounting foreign exchange reserves are held in a basket of assets which is dominated by US dollars at 65 per cent. Euros take up 26 per cent, pounds 5 per cent and yen 3 per cent, said China Securities Journal earlier this month, citing reserve managers it didn’t name.
Japan’s government has so far been able to finance its debt binges via domestic Japanese buyers, but their appetite is waning and the nation could one day be required to rely on foreign demand, such as China’s to finance its deficits. Which would make for a peculiar situation given Japan and China’s continued distrust of one another.