Cut in Japanese bond holdings 'not motivated by politics'

Decision to reduce made because of China's concerns over yen's continued depreciation, say economists

Yen depreciation fears prompted China to reduce its huge exposure to Japanese government bonds, Chinese economists said on Wednesday, dismissing suggestions that the move was politically motivated.

China cut its holding of JGBs by 6.2 trillion yen ($59.8 billion), or 30 percent, to 14.3 trillion yen by the end of 2013, the Nihon Keizai Shinbun reported on Monday, citing statistics from Japan's finance ministry.

The report went on to add that while it is understandable that Chinese monetary authorities would sell JGBs to protect the value of the country's foreign-currency reserves as the yen continued to weaken, there are reasons beyond that.

One reason, the newspaper guessed, is China could pressure Japan by threatening to dump vast, hidden holdings of JGBs. Such a move would send Japanese bond prices plummeting and long-term interest rates soaring.

Sino-Japanese relations have soured dramatically since 2012 over territorial disputes and other issues.

Xu Hongcai, an economist with the China Center for International Economic Exchanges, said that China's JGB holdings are far from substantial enough to pose a threat to Japanese bond prices.

China held 14.3 trillion yen of JGBs by the end of 2013, according to Japan's data. That made up about 1.43 percent of the 1 quadrillion yen worth of total JGBs. It also accounted for 3.6 percent of China's foreign exchange reserves by the end of last year.

Economists said that most of the Japanese bonds are snapped up by its domestic institutions such as the central bank.

China's decision to trim its JGB holdings is primarily out of concerns that the yen would depreciate further under Japanese Prime Minister Shinzo Abe's monetary policy easing.

Past actions are testimony to China's neutral stance on JGBs, they said. China increased JGB purchases in 2010 after concerns over the stability of the dollar surfaced in the wake of the global financial crisis.

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