Although tensions between China and neighbouring Japan remain taut there was some good news for the former nation’s economy today.
According to recent reports diplomats from China and Japan were unable to reach a peaceful consensus regarding the ongoing territorial dispute. China’s Vice Foreign Minister Zhang Zhijun informed his Japanese counterpart that Japan’s recent move to buy the hotly disputed Islands was ‘blatantly illegal’ and despite both men agreeing to more talk’s resolution won’t be quick in the coming.
Progression might be limited on that issue but, using reverse-repurchase agreements, China’s central bank was able to inject an unprecedented 290 billion yuan into the country’s financial system. This action was taken prior to a weeklong national Chinese holiday (during which China’s financial markets will be shut) and it is hoped that it will address interim cash squeeze issues.
Within a single day the People’s Bank of China offered 2-week contracts worth 100 billion yuan and conducted 190 billion yuan of 4-week reverse repos.
A bond analyst with China Merchants Bank Co. explained the central bank’s actions in the following way: ‘Record amounts of reverse repos are to meet the surge in cash demand before the quarter- end and the holidays.’ Liu Junyu went on to say; ‘As the central bank steps up adding funds through reverse repos, it’s unlikely to cut the reserve ratio this month.’
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