Why China Keeps Buying Japanese Debt?

From Bloomberg:

Japan’s government said it will seek discussions with China over the nation’s record purchases of Japanese bonds as an appreciating yen threatens to undermine an economic recovery.

Japan is closely watching the transactions and will seek to maintain close contact with Chinese authorities on the issue, Vice Finance Minister Naoki Minezaki told lawmakers in Tokyo. Finance Minister Yoshihiko Noda suggested at the same hearing that it’s inappropriate for China to buy Japan’s bonds without a reciprocal ability for Japanese to invest in China’s market.

China, which possesses the world’s largest foreign-exchange reserves at $2.45 trillion in June, has sought to diversify its holdings after already becoming the largest overseas investor in U.S. Treasuries. Japan has the second-largest reserves total, at $1.01 trillion, and is the No. 2 foreign owner of U.S. debt.

At the same time, Premier Wen Jiabao’s government has begun to open up access to China’s own debt market. The PBOC said on Aug. 17 it would let overseas financial institutions invest in the nation’s bond market to promote greater use of the yuan in global trade and finance.

http://www.bloomberg.com/news/2010-09-09/japan-plans-to-seek-talks-with-china-on-bond-purchases-after-record-buying.html