Reply #19: China's Central Bank Has Been Buying Yen, Wu Says (Update5) [View All]

[54anickel]

http://www.bloomberg.com/apps/news?pid=20601089&sid=aLjZt2kWrOSA&refer=china

Nov. 16 (Bloomberg) -- The People's Bank of China, which holds $1 trillion in currency reserves, has been buying yen, Deputy Governor Wu Xiaoling said.

Asked whether the central bank had been purchasing the currency, Wu said: ``We have.'' She declined to say if the pace of buying has increased. ``We have been holding Japanese yen in our foreign exchange reserves for many years,'' she added, speaking on the sidelines of a Bank Indonesia conference in Bali.

Central banks in Russia, Switzerland and New Zealand are increasing holdings of yen, anticipating the currency will rebound from a 20-year low on rising interest rates and the longest economic expansion since World War II. China is diversifying its reserves, about two-thirds of which are held in dollars. The nation's investors own $339 billion of Treasuries, the second-largest overseas holding after Japan.

``They seem to be testing the water and moving toward more diversification away from the dollar and into the yen and probably the South Korean won too,'' said Nizam Idris, a currency strategist at UBS AG in Singapore. ``Though they're not selling dollars to buy yen, just buying less of the dollar.''

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China may also be seeking to raise the value of the yen as it permits gains in the yuan, said Peter Morici, an economics professor at the University of Maryland. The yuan has risen 2.6 percent this year, in part as it responds to demands from some U.S. lawmakers who accuse China of artificially keeping the currency low to promote exports. By contrast the Japanese yen is little changed in 2006.

``China could push up the values of their currencies to ensure that it did not take up an undue share of the burden of currency realignment,'' said Morici in an interview today. ``Since most Asian currencies are convertible, it could buy lots of those currencies.''

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