China buys more Japanese government bonds

China has increased its holding of Japanese government bills so far this year, as Europe has slipped into sovereign debt woes and U.S is running a huge budget deficit which could hurt the value of the dollar.

Japan's Nikkei business daily newspaper reported that Beijing has drastically revved up its purchase of Japan's government bonds in2010, making net purchases of 540 billion Japanese yen (US$6.2 billion) during the January-April span.

At the same time, China's purchasing of euro-denominated bonds has declined because of the eruption of European debt crisis, starting from Greece and spreading to other southern European countries. Meanwhile, major European banks are reportedly in financial straits because of the crisis.

Beijing's purchase of Japan sovereign bonds marks a swing from a net sale of 80 billion Japanese yen in 2009.

The newspaper reported that beginning this year, China's buying of Japan bonds has been “frenetic”. China became the second-biggest foreign buyer of Japanese sovereign debt at the end of April, after Britain, the Nikkei report said.

China holds up to US$900 billion U.S. Treasury bonds now, but its purchasing of U.S. assets has slowed due to Beijing's concerns that Washington is running into deeper debt – at more than US$1.4 trillion last year, as Obama administration launched a huge stimulus plan to spend out of the Great Recession.

Many analysts in the country believe that if the United States could not trim its budget deficit in a timely manner, the future viability of the dollar would be damaged.

By People's Daily Online