Japan To Buy Chinese Govt Bonds Under Bilateral Pact

This is peculiar.
This supports the yuan vs the yen,
supporting Japan’s exports to China.

Could be more evidence of China’s inflation concern?

Japan To Buy Chinese Govt Bonds Under Bilateral Pact

TOKYO (Nikkei) — Japan will likely purchase yuan-denominated bonds issued by the Chinese government under a proposed bilateral currency and financial agreement, The Nikkei learned Monday.

Japanese and Chinese officials are working out plans to have the pact signed when their leaders meet for a summit this coming Sunday. The agreement will be pillared on the purchase of Chinese government bonds using Japan’s foreign exchange fund special account, along with the joint establishment of a green investment fund.

Japan seeks to diversify its forex fund special account, which now focuses on dollar investments. It also aims to strengthen economic cooperation with China by supporting that nation’s efforts to turn the yuan into a more international currency.

The bond purchases may total up to 10 billion dollars’ worth, or roughly 780 billion yen, with buying carried out in stages through the special account.

The Chinese government counts Japanese government bonds among its foreign-currency reserves. Through cross-holding of bonds, Japan and China will be better poised to exchange information on financial developments in the bond market and elsewhere.

The Japanese government also plans to aid Chinese efforts to nurture an offshore market for yuan-denominated transactions.

The proposed joint fund for environmental investment would feature the participation of the Japan Bank for International Cooperation and private-sector companies from the Japanese side. Details of the fund’s size and investment percentages are to be fleshed out in the near future.

Thailand and Nigeria are among the countries that hold yuan-denominated government bonds through their central banks. Tokyo and Beijing believe that having a developed nation like Japan maintain a certain amount of yuan-denominated holdings may help lift the Chinese currency’s standing on the international stage.

China’s government bond offerings totaled 1.4 trillion yuan in 2009, up 55% on the year.

Such issuances have recently increased in Hong Kong. Overseas investors can acquire government bonds issued on the mainland, but regulations — including a ceiling on purchase amounts — remain strict. top

China Bond Purchases Could Help Ties: Finance Minister

Japan To Buy Chinese Govt Bonds Under Bilateral Pact

TOKYO (NQN) — Finance Minister Jun Azumi on Tuesday confirmed a report that Japan is considering buying Chinese government bonds, arguing that such purchases will offer the two countries significant advantages while strengthening bilateral economic ties.

At a news conference after a Cabinet meeting, Azumi said Japan should hold yuan-denominated bonds as a means of strengthening diplomatic relations.

Azumi said no official decisions have been made on the matter, and that Tokyo will discuss the issue at a future Japan-China summit. He also suggested that the two nations may be able to strike an agreement when Prime Minister Yoshihiko Noda visits China.

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7 Responses to Japan To Buy Chinese Govt Bonds Under Bilateral Pact

  1. Tim says:

    There is a Wikileaks cable that indicated Chinese diplomats trying to interest the US in buying yuan denominated bonds. If I recall correctly, some b.s. about wanting to move away from Treasuries. I suspect this is a trial run.

    If members of the USG are stupid enough to start “financing” American spending by yuan denominated bonds then we are in for a world of hurt. I would go so far as to say that anyone who signs off on that is a traitor.


  2. Mario says:

    hmmm and the plot thickens indeed!!!



  3. Tom Hickey says:

    @John O’Connell, “Tokyo and Beijing believe that having a developed nation like Japan maintain a certain amount of yuan-denominated holdings may help lift the Chinese currency’s standing on the international stage.”

    China has been angling for a more dominant global position for some time and this includes financially. Agree with John O’Connell that this is a significantly political move in Asia that will have analysts scrambling over BOP (not balance of payments but balance of power). This is another step in the shift of power to Asia that will accelerate in this century. But the idea that Asia is going to overtake or replace the West anytime soon is premature.


    Adam (ak) Reply:

    @Tom Hickey,

    Tom, I disagree.

    Asia will overtake the West as the engine of scientific and technological growth in a generation time. It will inevitably change the political dynamics and lead to the collapse of America as the only superpower, relegating it to the second league.

    America will be not the beacon of civilisation but rather an overgrown North Mexico with pockets of extreme wealth surrounded by the sea of poverty and hopelessness. Unfortunately Europe may succumb to the same trend but their culture may be more resilient so I would not write them off yet.

    Did the army and all the nukes they had save the USSR? So having a strong army is not enough.

    This prediction is self-evident here in Australia where we have a large group of resident Asians who easily outcompete any other ethnic group as students – because they work harder. I see it at my daughter’s school. Since these are only the first and second generations and the headwinds are strong – they only started moving to other social roles in business and accumulating wealth.

    Fast-forward 20 years – you will see the same phenomenon as the unique social position occupied by Jews / people of Jewish ancestry in Poland and Central Europe in general in the late 19th/early 20th century. Who were Albert Einstein, Fritz Haber, Heinrich Hertz or Karl Marx, Ludwig von Mises, Michal Kalecki? Not to mention the Jewish financiers and entrepreneurs. Did they have better genes than the Slavs / Germans? I do not believe in racism. The genetic factor is statistically insignificant. Their culture gave them the advantage.

    If everything goes well Australia will look like an enlarged Singapore in 20-30 years time. I have nothing against it.

    One may say – but we cannot extrapolate anecdotal evidence from a high school in Sydney attended by my daughter to the competition of between big countries and cultures in general. The children of migrants always work harder. But the Chinese in the Mainland have exactly the same attitude as the Chinese in Sydney.

    The Chinese and other Asians actually believe in hard work and scientific progress rather than maximisation of profits through greed and perfecting exploitation of the workers only (what doesn’t mean that they don’t exploit). You can see this on statistics and this is the real explanation of their success. Sharing knowledge and learning from the others is often labelled as stealing “intellectual property” but that para-legal extension of property rights of information is itself a sign of the decay of the Western Anglo-Saxon civilisation and another possibly cause of its demise. The Chinese are right – a method of interacting with a mobile phone by a single-tap on the screen is not an “invention”. As long as the American plutocracy can enforce their bizarre IP laws on themselves but cannot do that on the Chinese and the others making things for themselves – the Asians have a competitive advantage.

    Please compare their modern culture with the offering of neoliberalism. One may say – but China is not a democratic country and it is still poor. So what? Their schools are better and their students do not study creationism. And what is even more important – their undemocratic leadership believes in the restoration of the past glory of China as the richest and most influential country on Earth by the means of scientific and economic progress, not by a self-regulating market mechanism hijacked by the Wall Street plutocracy and sending their troops everywhere they smell oil.

    When oil becomes scarce and too expensive to extract, one how is better prepared will become the next top dog for several hundred years or so.

    Some may say that neoclassical economics is just a propaganda tool to achieve political goals. Everything can be “fixed” in a postmodernist way by telling people that what they think is an illusion and that my illusion is bigger than yours. But I believe that political developments are merely a result of deeper objective shifts in the underlying social and economic processes. It is the inability to even see these processes and to see the forest for the trees what ensures a timely demise of the West and America in particular. There are not enough progressives to wrestle the control from the plutocrats who really don’t care.


    Tom Hickey Reply:

    @Adam (ak),

    Maybe Adam, but I just don’t see the numbers adding up that way unless the US and West really tank, halting or reversing GDP, while China, India, and Indonesia grow at a blistering pace. Absent a war in which a great deal of Western potential is destroyed, I don’t think that Asia can play catch up in a generation. But the pace of change is greatly accelerating, so you may be right.


    John O'Connell Reply:

    @Adam (ak),

    I think a generation is too short, too, given the amount of (economic) ground they have to make up.

    However, the observation about student performance and ethnicity sounds like the US, too. Much is made of the fact that certain ethnic minority groups lag behind whites in America, but Asians (of all ethnic backgrounds) do better in school than whites, and it does seem to be cultural.

    [Cubans do well, too, despite the fact that the larger “Hispanic” group does not as well. Perhaps the experience of setting out on the ocean in a small boat in order to escape one’s homeland instills something of motivational value.]

    Also, a lot of Asians migrate to the US and stay here. Maybe they will help the US maintain its position.


  4. John O'Connell says:

    Not peculiar at all, and not motivated by economics as much as by politics. Japan and China were each once (more than once?) the dominant empire in their world, and there may be a great cultural aspiration to be so again, or at least to be regarded as a major “player”, equal in stature to the greatest of the Western powers. I believe what it says, in terms of the economics, that they want to diversify away from $US debt, but that is only a means to their end. Holding $US debt exclusively could be considered an affirmation of their subordinate position on the world stage. Getting others (even each other) to hold their debt rather than ours would be a competetive victory.


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