China is on a shopping spree, buying up Japanese government bonds.
It bought close to a net 9 trillion yen ($86.6 billion) worth of JGBs in the January-August period, more than tripling the amount from the same period last year.
It is likely that the People’s Bank of China, the central bank that manages the country’s foreign reserves, has been reducing its holdings of U.S. Treasurys in anticipation of higher U.S. interest rates and shifting some of its money to JGBs. During the eight months, the bank cut its U.S. Treasury holdings by about $48 billion, according to data by the U.S. Treasury Department.
This trend may be a reason behind the yen’s appreciation in foreign exchange markets in recent months.
According to Japan’s Ministry of Finance, China invested 8.9 trillion yen in Japanese securities in net terms between January and August. Buying started to exceed selling more often on a monthly basis in the second half of 2015. In April, net buying surpassed 3 trillion yen. Most of the securities are bonds with maturities of one year or less.
China holds the largest amount of U.S. Treasurys in the world. If the Federal Reserve raises interest rates further, after hiking them for the first time in years last December, Treasury prices may fall lower. When the Fed hikes rates, investors tend to reduce their Treasury holdings.