Chinese investors bought a net Y541bn ($6.2bn) of Japanese government bonds in the first four months of the year amid concerns over Europe's debt woes.
Analysts said the scale of the buying – more than double the full-year record of Y253.8bn in 2005 – was notable compared with the rate of increase in China's foreign exchange reserves in the first quarter.
Data from the People's Bank of China revealed that the country's FX reserves grew by $48bn in the first three months of the year. Assuming that the PBoC continued to accumulate reserves at the same pace, this implies that purchase of JGBs accounted for nearly 10 per cent of new reserves.
But Derek Halpenny at Bank of Tokyo-Mitsubishi UFJ said investors should be cautious about concluding that the JGB purchases were signs of an upturn in confidence in Japan by China.
但三菱东京UFJ银行(Bank of Tokyo-Mitsubishi UFJ)的德里克•赫尔潘尼(Derek Halpenny)表示，投资者应对如下结论保持警惕，即中国增持日本国债表明中国对日本经济的信心正在回升。
He said the data showed that 96 per cent of the invested funds were in securities maturing in less than a year, which indicated that “the China investment was more about liquidity than confidence in Japanese fiscal policy”.
And “the turmoil in the eurozone was a clear factor that will not persist indefinitely”. The investments “could be viewed as being made by default”.
Analysts cautioned that the data from Japan's finance ministry did not give the full picture of Chinese buying of JGBs.
The data only take into account transactions from the country of origin. For example, if a Chinese investor bought JGBs via a London-based brokerage, a UK transaction would be recorded.
Nevertheless, some currency analysts said demand from China had probably been a driver of yen strength. The Japanese currency is up over 20 per cent against the euro since the beginning of the year.
Junya Tanase, of JPMorgan, said: “China purchases of JGBs seem to have been one factor supporting the yen . . . though it has not been the main driver.”
The US Congress moved closer to punishing China for allegedly manipulating its currency, as a key committee of the House of Representatives voted to advance legislation that could