Hot Money Flows Out Of China, Japan To Purchase Chinese Debt

By: EW News Desk Team   Date: 21 December 2011

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EW News Desk Team

Always on the look out for the latest news to monitor the state of the world economy.

EconomyWatch, News Desk Team

 

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21 December 2011

For the second consecutive month, financial data revealed a net outflow of foreign exchange from China leading to expectations of another cut in the reserve requirement. Separately, Japan’s finance minister Jun Azumi said that Tokyo was looking to buy Chinese public debt, as a way of diversifying its forex holdings and getting more involved in the world’s second largest economy.

China had hot money flowing out of its system for the second consecutive month in November, with Chinese banks’ yuan positions for foreign exchange purchases falling by 27.9 billion yuan ($4.43 billion) amid renewed concerns over a hard landing.

Related Story: China’s 2012 Outlook: The Bad News about the Reserve Cut

Related: China Eases Bank Reserve Requirement

 

A fall of 24.9 billion yuan was first registered in October, the first time in four years for China.

Analysts believe this could prompt policymakers to further loosen monetary policy, and perhaps return to the pegging of the yuan to the dollar.

In a news briefing in Beijing, Zhang Zhiwei, chief China economist at Nomura said “increasing capital outflows reflected China’s shrinking trade surplus and slowing foreign direct investments in the short run.”

 

Separately, Japan’s finance minister Jun Azumi said yesterday that the country was in talks to purchase Chinese government debt, as a way to strengthen economic ties between the two nations.

Although no formal agreement has been made, Azumi said the move would be “mutually beneficial.” At the same time, he stressed:

We are not abandoning the dollar or euro, but we are adding the yuan to deepen our relationship.

Related: UK turns its back on the euro 

Japan currently holds most of its foreign reserves in dollars.

According to information released by the Nikkei newspaper, Japan could buy up to 780 billion yen or 10 billion yuan of government bonds.


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