In a new move, Japan purchases Chinese national bonds

03/24/2012
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TOKYO (majirox news) — Japan has been cleared for the first time to buy 10.3 billion dollars worth of Chinese government bonds. Unlike many other countries, China does not allow foreign investors to freely purchase its debt, but requires purchasers to be approved by Beijing.

According to Japanese Finance Minister Jun Azumi, Japan had agreed to purchase Chinese government bonds in December last year, but the announcement of the decision was delayed, pending official approval of the deal.

As part of Japanese Prime Minister Yoshihiko Noda’s developing relationship with China, the possible purchase by Japan of Chinese sovereign debt formed an item in a top-level agenda a few months ago.

“If you recall that Prime Minister Noda visited Beijing on Christmas Day and he discussed those issues,” said Noriyuki Shikata, Deputy Cabinet Secretary at the Prime Minister’s Office. “We cooperated with the Chinese leaders and engaged the Chinese side in the context of deepening bilateral and economic and the financial area. This included purchasing government bonds.”

How far this is simply a public relations exercise by the two governments remains to be seen, but there are signs that this is a real step forward in the development of the East Asian economy and international relations in the region.

Ed Merner, president of Atlantis Investment Research Corporation in Tokyo, says, “The key here is the Asian economy and also better relations between the major Asian countries, and of course, China is now the largest in terms of GDP of all the Asian countries and Japan is number two. Since relations have not been so good, having financial cooperation and by investing in China will be a very big plus and also helps to diversify the Japanese assets.”

He added that the purchase may have positive economic spinoffs for the entire region.

“All of the Asian countries want stable currencies,” he said. “Because if you’re exporting, and all the countries are exporting, the foreign exchange rates are jumping around and it can be very difficult for business and sometimes results in hard times. By having a relatively stable currency this is a great aid to growing economies, and all of the countries want to grow.”

However, some people don’t believe that the bond purchase is necessarily going to increase Sino-Japanese trade.

Tomo Fujita, a telecommunications employee in Tokyo, says, “Unless the Chinese government stops the Chines companies from stealing technology from the Japanese companies the trade volume won’t be increasing in the near future.”

But this is by no means a universally held opinion.

Kenji Tanaka, a businessman in Tokyo, says, “The Japanese government buying Chinese bonds and the Chinese buying Japanese bonds pushes both economies to grow more rapidly. However, it will still be difficult for the struggling Japanese economy to grow, but its one of the solutions to push Japan’s economy.”

According to some analysts, Japan’s purchase of Chinese government bonds is a significant step. Japan wants better financial cooperation with all Asian countries, but especially with larger Asian countries like China, and the holding of China’s bonds is a significant move towards such cooperation.

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