— But No Formal Decision Yet on Buying Chinese Govt Bonds
— China Bond Buying Wouldn’t Mean Breaking Away From Dlr, Euro
— Market Confidence in U.S. Dollar To Remain Intact
— Govt Has Drafted 4th Supplementary Budget Worth Y2.53 Trillion
— Govt To Issue No New Bonds for 4th Extra Budget for FY11

TOKYO (MNI) – Finance Minister Jun Azumi said on Tuesday that Tokyo
and Beijing are discussing Japanese buying of Chinese government bonds
but that no formal decision has been made yet.

Even if Japan decides to purchase Chinese government debt, it would
not mean Tokyo is breaking away from its tradition of holding foreign
securities denominated mostly in the U.S. dollar and euro, he told a
news conference.

Market confidence in the dollar will remain intact, he added.

Azumi said yuan bond buying will be beneficial for financing needs
of both Japan and China as well as boosting bilateral ties.

As part of its efforts to diversify investment overseas, Japan
plans to buy a total of $10 billion (Y780 billion) worth of
yuan-denominated bonds issued by the Chinese government under a proposed
bilateral currency and financial agreement, the Nikkei reported on
Tuesday.

Japanese and Chinese officials are working out plans to have the
pact signed when their leaders meet for a summit on Sunday, said the
business daily.

MOF officials have said Japan has been trying to diversify its
forex fund special account, which now focuses on liquid dollar
investments, but that Japan’s foreign securities holdings will remain
dollar heavy.

Japan also aims to strengthen economic cooperation with China by
supporting that nation’s efforts to turn the yuan into a more
international currency, the Nikkei said.

On the domestic fiscal front, Azumi said the government has drafted
a fourth supplementary budget for fiscal 2011 worth Y2.535 trillion,
which will require no new debt issuance.

The budget is aimed at financing social security outlays, helping
small businesses cope with the lingering strong yen and funding
subsidies for buying energy-saving automobiles, he said.

The budget will also back the government’s decision to boost its
funds for foreign exchange market interventions by raising the cap on
the issuance of short-term financing bills to Y195 trillion from the
current Y165 trillion.

“We are preparing to take decisive action any time (in the forex
market),” Azumi said.

tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4833 **

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