Japan is concerned that China’s record purchases of Japanese bonds are causing the yen to appreciate, undermining Japan’s economic recovery, Bloomberg reported. The Japanese government has said it intends to seek discussions with Beijing on the issue. Finance Minister suggested that it is inappropriate to allow China to invest in Japanese bonds while the policy is not reciprocal. Due in part to Chinese purchases, the yen has surged to a 15-year high against the dollar, prompting Japanese companies to warn that their overseas earnings are under threat. China has increased its net holdings of Japanese bonds for seven straight months ending in July, and now holds US$6.97 billion worth. However, most of Chinese holdings are short-term debt, suggesting that China is not making a structural shift in its reserve allocation. Japan and China are also engaged in a face-off over Japan’s decision to arrest the captain of a Chinese fishing boat that collided with Japanese coast guard vessels in a contested island group in the East China Sea.
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