Exploring the secret: The huge secret behind Japan's first purchase of tens of billions of Chinese government bonds (picture)

The secret: The huge secret behind Japan's first purchase of tens of billions of Chinese government bonds (picture) On December 25, Japanese Prime Minister Yoshihiko Noda said before his visit to China that he would...

On December 25, Japanese Prime Minister Yoshihiko Noda said before his visit to China that he would inform China that Japan would purchase RMB bonds issued by the Chinese government for the first time. During the talks, Premier Wen Jiabao stated that China is willing to work closely with Japan to promote the development of the two countries' local currency financial markets and accelerate the process of the China-Japan-ROK free trade area and East Asia financial cooperation.

Previously, Japanese Finance Minister Azumi Junzai announced the purchase of US$10 billion in Chinese government bonds, which attracted worldwide attention. Noda's visit to China is considered to be focused on seeking economic cooperation. As the second largest creditor of the United States, Japan's purchase of treasury bonds from China, the largest creditor of the United States, is undoubtedly of symbolic significance. If Japan's plan to purchase Chinese government bonds is implemented, it will cause a variety of effects. China's unilateral holding of Japanese government bonds will become mutual holdings. Japan will not only send a "gift package" to China diplomatically, but it will also kill two birds with one stone, which will also be of great benefit to itself.

China began to purchase Japanese government bonds in 2005. In April this year alone, China purchased a net 1.33 trillion yen of Japanese medium- and long-term government bonds, setting a historical record and causing waves in Japan. Japan believes that China's unilateral holding of Japanese government bonds will make Japan passive diplomatically. It hopes to promote information exchange with China in financial markets and other economic fields through the purchase of Chinese government bonds and ensure a certain say in China.

Yoshihiko Noda was the former Minister of Finance and has his own plans for promoting financial cooperation with China. From an economic strategic perspective, as of the end of November this year, Japan's total foreign exchange reserves amounted to approximately US$1.3 trillion, ranking second in the world after China. More than 70% of Japan's foreign exchange reserves consist of U.S. dollar assets. In early August, when the credit rating of U.S. Treasury bonds was downgraded and the U.S. dollar's base currency status began to shake, investing in RMB bonds can reduce risks and reduce losses caused by exchange rate fluctuations.

Some analysts pointed out that in the context of the debt crisis in the United States and Europe, diversification of the composition of foreign reserves has become a general trend. For Japan, holding RMB assets is now safer than holding high-risk assets such as euros, and it is also in line with Japan's consistently conservative foreign reserve investment strategy. While diversifying risks, Japan also favored China and supported the RMB.

For China, this is the first time that the RMB has become the reserve currency of a developed economy, and it is an important progress in the internationalization of the RMB. Dariusz Kowalczyk, a strategic analyst at Crédit Agricole, said that a G7 country buying Chinese government bonds is a great recognition of the yuan. Because the RMB is different from currencies such as the U.S. dollar, euro and Japanese yen, its flow in the global market is restricted by the Chinese government. This time, China allowed G7 countries to purchase treasury bonds, which reflects that China has opened a loophole for the global circulation of the RMB.

China and Japan hold each other's treasury bonds, which may accelerate Japan's move away from dependence on the U.S. dollar, but it will not shake the current status of the U.S. dollar, nor does it mean that Japan will give up U.S. treasury bonds. Although Japan's trust in the U.S. dollar has declined, while buying Chinese government bonds, Japan will still purchase U.S. government bonds in the future. After all, Japan holds the largest number of U.S. dollars in foreign exchange reserves, and so does China. The US$10 billion RMB bond is only symbolic, but its significance is long-term