MercoPress. South Atlantic News Agency

Japanese Yen rallies to 15-year high on China’s record purchase of bonds

Japanese Finance Minister Yoshihiko Noda wants reciprocity from Beijing

As the Yen rallied to a fifteen year high against the US dollar, Japan’s government said it will seek discussions with China over the nation’s record purchases of Japanese bonds as an appreciating currency threatens to undermine an economic recovery.

Japan is closely watching the transactions and will seek to maintain close contact with Chinese authorities on the issue, Vice Finance Minister Naoki Minezaki told lawmakers in Tokyo. Finance Minister Yoshihiko Noda suggested at the same hearing that it’s inappropriate for China to buy Japan’s bonds without a reciprocal ability for Japanese to invest in China’s market.

The comments indicate communication gaps between Asia’s two largest economies even as their trade links deepen, with Noda reiterating he doesn’t understand why China is accumulating the securities. The purchases may help Japan finance the world’s largest public debt load, while at the same time contribute to demand for Yen that’s propelled it to a 15-year high.

“I feel strange that China can buy Japanese government bonds while Japan can’t buy theirs,” Noda said in answering lawmakers’ questions at a hearing on the economy today. “There is a room to discuss that” with Chinese officials, he said.

China bought more Japanese bonds than it sold for a seventh straight month in July, acquiring a net 583.1 billion Yen (6.97 billion USD) and heading for a record annual increase, Japan’s government reported Wednesday.

The Yen has soared 9% against the dollar in the past three months, posing a risk to the export gains that have propelled Japan’s rebound from its deepest post-war recession. Noda said that his government is studying the effectiveness of intervention in the foreign-exchange market, something Japan hasn’t done since 2004.

Against the dollar, the Yen traded at 83.76 Wednesday after on Tuesday it reached 83.35, the highest level since 1995.

China, which possesses the world’s largest foreign-exchange reserves at $2.45 trillion in June, has sought to diversify its holdings after already becoming the largest overseas investor in U.S. Treasuries. Japan has the second-largest reserves total, at $1.01 trillion, and is the No. 2 foreign owner of U.S. debt.

At the same time, Premier Wen Jiabao government has begun to open up access to China’s own debt market. The POBC (central bank) said on Aug. 17 it would let overseas financial institutions invest in the nation’s bond market to promote greater use of the Yuan in global trade and finance.