Beijing: China went from scooping up the most Japanese debt in a year to selling the most, exiting the world's lowest yields as forecasters expect the yen to retreat from the 15-year high seen in November.

China sold a net 81.3 billion yen (Dh3.5 billion) of Japanese bonds in November, Japan's Ministry of Finance said yesterday. China had been set for the biggest yearly increase since at least 2005 before unwinding with net sales in three of the four months through November.

"With China's currency likely to appreciate against the yen, there is little incentive for China to buy Japanese debt," said Masaru Hamasaki, chief strategist at Toyota Asset Management Co in Tokyo, which manages about $17 billion. "Because of low yields and currency risk, I think China won't buy much Japanese debt this year."

China, holder of the world's largest foreign-exchange reserves, is shifting attention from Japan to Europe as a credit crisis pushes the trading bloc to seek outside help, according to Susumu Kato, chief economist for Japan in Tokyo at Credit Agricole CIB and CLSA. Chinese Vice Premier Li Keqiang last week expressed confidence in Spain's financial markets and pledged more purchases of that country's debt.

Japan's currency will tumble almost 10 per cent against the dollar this year, according to the median estimate of economists surveyed by Bloomberg, which would give the currency its worst annual performance since 2005. The yen surged against all of its 16 major counterparts in 2010, prompting the government of Prime Minister Naoto Kan to intervene to weaken the currency in September for the first time since 2004.

The yen continued to climb, reaching 80.22 per dollar on November 1, the highest since April 1995 when it set a postwar record of 79.75. China's yuan rose 3.6 per cent in 2010 after the government relaxed exchange controls in June, and analysts see it ending this year 4.8 per cent stronger, at 6.30 to the dollar.

China bought a net 2.32 trillion yen in Japanese debt in the first seven months of 2010 and was set for the biggest yearly increase on record until reducing the holdings by 2.02 trillion yen in August. Japan in September said it was inappropriate for China to buy its bonds without a reciprocal ability for Japan to invest in China's market.

  • 81.3b: yen worth of Japan's bonds sold by China
  • 2.32tr: yen worth of Japanese bonds it bought in 2010