China purchased US$5.3 billion worth of Japanese bonds in June as it sought to diversify its US dollar-dominated foreign reserves holdings, Bloomberg reported. It was the sixth consecutive month of net purchases of Japanese debt, though the level of purchasing was lower than in May, when Beijing spent US$8.6 billion on Japanese bonds. However, yen-denominated bonds still make up a relatively small proportion of China’s US$2.45 trillion foreign-exchange reserves. China’s efforts at diversifying its holdings out of US Treasury debt and European bonds have been stymied by a lack of options. The volatility of the yen has limited its attractiveness as a reserve currency, but it now represents an opportunity to offset the risk of a sharp depreciation of the US dollar.
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