July 8, 2010 (Chinavestor) China is snatching up Japanese bonds at a record pace, purchasing $8.3 billion of Japanese debt in May alone. China purchased about $9 billion in Japanese bonds last year. Purchases in 2010 are nearly fives times larger than 2005, the year when the previous record for China's purchases of Japanese bonds was set.
Analysts speculated that China purchased Japanese debt after paring its holdings of Euro-denomiated holdings. The Japanese Yen has held up relatively well while riskier currencies have faltered in recent months, making Japanese bonds all the more attractive to China.
China may be considering small alterations to its foreign exchange reserves, the largest in the world and largely denominated in U.S. Dollars. The yield on Japan’s benchmark 10-year bond dropped last quarter by the most since the last three months of 2008, declining to 1.055 percent on July 1, the lowest since August 2003, Bloomberg News reported.
China is Japan's largest export and customer and Japan has been working to bolster ties with China as China's economic growth continues to soar. China boosted its holdings of U.S. Treasuries to $900.2 billion in April, Bloomberg reported. China holds $2.45 trillion in foreign currency reserves.