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China Buys Most Japan Short-Term Debt in 1 1/2 Years

China bought the most short-term Japanese debt since May 2010 in February, according to data released by Japan’s Ministry of Finance today.

The world’s largest holder of foreign-exchange reserves increased net purchases of short-term Japanese debt to 651 billion yen ($8 billion), the highest since May 2010, when China bought 694.8 billion yen, according to Japanese government data going back to 2005. China sold 268.8 billion yen of medium- and long-term Japanese bonds in February.

“China may have increased yen assets as the currency became cheaper,” said Akihiko Inoue, chief strategist in Tokyo at Mizuho Investors Securities Co., one of the 25 primary dealers obliged to bid at government debt sales. “The yen fell in February after the Bank of Japan eased policy.”

The yen reached 84.18 per dollar on March 15, the lowest since April 13, 2011, and was at 81.52 as of 12:28 p.m. in Tokyo. The currency dropped against all of its 16 major counterparts in February. Japan’s 10-year yields have fallen two basis points since the start of this year, and were at 0.96 percent today.

The BOJ on Feb. 14 unexpectedly added 10 trillion yen to an asset-purchase program and set an inflation goal of 1 percent after an economic slide fueled criticism it’s lagging behind efforts by other central banks to support growth.

Officials in both China and Japan have signaled the two nations will increase investments in each other’s government debt. People’s Bank of China Deputy Governor Yi Gang said on March 12 the nation will buy Japanese government bonds, while Japanese Finance Minister Jun Azumi said the following day the country got approval to purchase $10.3 billion in Chinese debt. Azumi said Japan will start the purchases in small amounts.

China’s foreign reserves were at $3.18 trillion at the end of December, down from a record $3.27 trillion in October, according to the latest available data.

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