Is China Trying to Strengthen the Yen?

The difference:

While China can buy Japanese bonds, Japan can’t buy Chinese government bonds using its foreign reserves.

The Chinese government is not playing the same game. 

To James: I’m afraid I don’t follow. Would you care to expound a bit on your rebuttal? There is definitely no institutionalized discrimination towards the Japanese or other foreigners when it comes to the purchase of Chinese government bonds (rather, the IMF would have a field day if this was actually the case). In fact, both you and I would be able to bid on and purchase these bonds if we wanted to.
 
As far as I can see, you might be referring to two different but related issues: firstly, possibly the fact that the Chinese government doesn’t issue that many bonds to begin with – unlike most OECD nations, the Chinese have comparatively low public debt and have no need to issue a large number of bonds. Otherwise, you might be referring to the fact that the Chinese government doesn’t issue bonds in CNY denominations, but prefers to use the USD or Euro. There are several reasons for this, and I don’t doubt that currency protectionism is one of the major ones, but this practice is sadly considered neither illegal nor unethical. In fact, many developing nations choose to do this, and Japan could as well – except if it did, it would increase the amount of USD in circulation → the USD would weaken → the value of the JPY would increase in relation, worsening their already precarious situation. The Chinese can freely do this because, as I stated earlier, they don’t issue enough bonds in the long run to severely impact the value of competing currencies… I suppose that’s one of the advantages of not running everything in the red.

To Respect: I don’t know how you choose to define an ”open market operation”, but I find it difficult to employ the term for the act of printing trillions of yen out of thin air and dumping it all into the international markets to force depreciation. Do you also happen to consider the laundering of counterfeit money to be an ”open market operation”? After all, just like the BoJ interventions, it involves the forceful injection of large amounts of funny money into the “open market”. Also, the so-called “tight regulation” of the CNY is more or less a byproduct of its very limited circulation, because, as I outlined to James, the Chinese government chooses – craftily – to perform all international transactions in USD or Euro, not CNY.

…Well, another interpretation would be that the regulation and devaluation of the CNY is the ultimate goal and their use of USD and Euro is merely the byproduct of that. Either way, the final point is that, despite accusations of the contrary, the Chinese actually are, perhaps surprisingly, playing by the rules. In other words, they’re playing the same game. As much as we might dislike the idea of it, they are now undoubtedly the largest sovereign wealth nation on Earth and they have a very solid grasp of the mechanics of the floating fiat currency — sadly unlike our own policy makers.

U.S. Report Cites ‘Persistent’ Chinese, Russian Spying for Economic Gain

http://online.wsj.com/article/SB10001424052970203716204577015540198801540.html?mod=WSJAsia_hpp_LEFTTopStories

Zero – Are you going to say that Japan also did this ages ago. And now “the Chinese are playing the same game, but better, against both Japan and the US.”  

From my understanding, if no one bought bonds from the government, its only resort would be to print money. The practice of creating money to make up for budget deficits would likely lead to hyperinflation within the decade à la Zimbabwe so governments wisely choose to avoid this. Thus Japan wouldn’t run out of money per se, but selling bonds is the preferred solution to a deficit that cannot be paid for via taxation.

I assume Mr Noda is getting antsy about the fact that the Chinese are buying up these bonds because it’s apparent they plan to hoard all the money up and lock it away for eternity. (Well, being the former finance minister, he definitely knows what the Chinese are up to — especially since he was in charge of doing the same thing vis-à-vis the US.) The assumption is that most normal bond purchasers will only hold on to the bond in order to profit from the fixed interest rate and then allow this money to flow back into open circulation via normal spending (therefore not impacting the currency’s value).