China bought more Japanese bonds than it sold for a seventh month in July, heading for a record annual increase, as a weakening dollar encouraged it to diversify debt holdings.
China purchased a net 583.1 billion yen ($6.97 billion) of Japanese debt in July, the Ministry of Finance said today in Tokyo. China’s increase in Japanese debt holdings comes as the dollar trades near a 15-year low against the yen.
“It’s part of China’s ongoing efforts to diversify its currency holdings, and they are increasing yen-denominated assets,” said Koji Ochiai, chief market economist in Tokyo at Mizuho Investors Securities Co., a unit of Japan’s second-largest bank. “Dollar weakness is continuing, which will weigh on China if they do nothing.”
Japan’s benchmark 10-year bond yield fell to a seven-year low of 0.895 percent in August, according to data compiled by Bloomberg. The yield on the 1 percent bond due September 2020 dropped 1.5 basis points to 1.12 percent today at Japan Bond Trading Co., the nation’s largest interdealer debt broker.
The dollar has fallen 10 percent this year against the yen. The dollar touched 83.52 yen yesterday, the lowest since June 1995, before trading at 83.71 yen today.
China bought a net 735.2 billion yen of Japanese debt in May, the most in records dating from 2005, ministry data showed. It purchased a net 456.4 billion yen of the securities in June.
“Japan’s bonds are being bought as a last resort because people don’t want to buy the dollar or the euro,” said Akio Kato, team leader of Japanese debt in Tokyo at Kokusai Asset Management Co., which runs the $38.5 billion Global Sovereign Open fund. “Money has to go somewhere.”
The U.K. was the largest buyer of Japanese debt in July, with net purchases totaling 3.1 billion yen, according to the Ministry of Finance.
About 95 percent of Japan’s debt is held domestically, which sovereign-debt agencies have said supports the country’s creditworthiness even as borrowings approach 200 percent of gross domestic product.