China buys Japan debt as crises in West grow

'Overseas central banks diversifying away from US dollar,' analyst says

TOKYO - China bought more Japanese debt than it sold for the first time since October 2010 as it sought refuge from the fiscal crises of the United States and Europe.

The country with the fastest-growing major economy bought a net 345.6 billion yen ($4.5 billion) in money-market instruments and sold 166.7 billion yen in Japanese bonds and notes in August, resulting in a total purchase of 178.9 billion yen, according to a statement Japan's Ministry of Finance released in Tokyo on Tuesday.

"Adding to the broad trend that overseas central banks are diversifying away from the US dollar in their currency reserves, the yen has become a refuge from the financial turmoil that started in Europe," said Yuji Kameoka, managing director of the investment strategy and research department in Tokyo at Daiwa Securities Capital Markets Co, a unit of Japan's second-biggest brokerage.

The yen strengthened to a postwar record of 75.95 on Aug 19 amid concern that the European sovereign-debt crisis may spread to the region's bigger economies, while Japan's benchmark 10-year yields sank to as low as 0.97 percent that month.

Standard & Poor's downgraded the US's AAA long-term credit rating for the first time on Aug 5, citing that nation's political process and criticizing lawmakers for failing to cut spending or raise revenue enough to trim record budget deficits.

The yen tends to appreciate during economic and financial turmoil because Japan's current-account surplus makes it less reliant on foreign capital.

China will continue to "seek diversification in the management of reserve assets, strengthen risk management, and minimize the negative impacts of the fluctuations in the international financial market on the Chinese economy", People's Bank of China Governor Zhou Xiaochuan said in August. China holds the world's largest foreign-exchange reserves at more than $3 trillion.