In a bid to improve their ties with the Asian neighbor, Japan is seriously thinking of buying Chinese bonds, though it may need diversifying the foreign reserves of Japan. At present, the foreign currency of Japan is only denominated in dollars. This was stated by Jun Azumi, the Finance Minister, just days ahead of the visit to China by the Prime Minister Yoshihiko Noda.

The news has got remarkable attention in the financial markets since for the first time in history, Japan has intended to shift a part of their foreign reserves into a debt which is denominated by Yuan. Announcing this at a press conference, he said that both the nations are having discussions for a long time and it will bring huge mutual benefits if both the countries start buying government bonds of each other.

He said in the press conference that, “Our country currently has no Chinese bonds. My assessment is that our holding those products would be beneficial to building relationships between us.”

Foreign currency reserve of Japan is $1.3 trillion and the amount is second only to that of China. Most of Japan’s foreign reserves are utilized to buy US treasury bonds and only a small portion of it goes to Euro. The two economically strong nations were holding a discussion for many days on cooperation on various aspects and out of it the most important one was holding sovereign debt of each other.

An estimate given by the officials says that Japan is willing to invest as much as $10 billion in Chinese government bonds over a certain period of time. Analysts are of the opinion that Tokyo may have taken this effort in order to protect the true value of their foreign reserves against a strong yen. For one year, yen is going record strong against the dollar and Japan has seen huge losses in tens of trillions of yen.

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