How should we view these recent turnover trends? China's State Administration of Foreign Exchange (SAFE), positioned beneath the People's Bank of China (PBoC), is charged with the management of China's $2.4 trillion in forex reserves. However, the composition of those assets and records of their transactions are state secrets that are not made public. According to materials available on SAFE's website, the management of forex reserves is conducted under the principles of safety, liquidity, and profitability. Allocation aims to diversify currencies and asset classes in order to achieve a balanced portfolio. The basis for allocations is derived with reference to the structure of China's economy, such as trade, foreign direct investment (FDI), and settlements, as well as the scale of the markets in target countries. Once the specific composition of the currencies to be invested in is determined, allocation to assets denominated in those currencies is undertaken from a long-term and strategic standpoint.

Based on the above, we can perhaps make an educated guess, to some degree, about China's thinking on forex and interest rate markets. First of all, China's recent sales of dollar assets and buying of yen assets arguably reflect a view that the dollar will depreciate and the yen will appreciate. Also, considering the level of asset allocations, China's net sale of US Treasuries in June was its first in 16 months. Perhaps the Chinese authorities are taking precautions against a rise in US interest rates. Meanwhile, the fact that China's buying of net purchases of yen assets was almost entirely in short-term JGBs may suggest that the concerns of the Chinese authorities over the long-term problems of the Japanese economy have not been dispelled, and that they increased their exposure looking for a short-term appreciation of the yen.

Eoin Treacy's view How should we view these recent turnover trends? China's State Administration of Foreign Exchange (SAFE), positioned beneath the People's Bank of China (PBoC), is charged with the management of China's $2.4 trillion in forex reserves. However, the composition of those assets and records of their transactions are state secrets that are not made public. According to materials available on SAFE's website, the management of forex reserves is conducted under the principles of safety, liquidity, and profitability. Allocation aims to diversify currencies and asset classes in order to achieve a balanced portfolio. The basis for allocations is derived with reference to the structure of China's economy, such as trade, foreign direct investment (FDI), and settlements, as well as the scale of the markets in target countries. Once the specific composition of the currencies to be invested in is determined, allocation to assets denominated in those currencies is undertaken from a long-term and strategic standpoint.

Based on the above, we can perhaps make an educated guess, to some degree, about China's thinking on forex and interest rate markets. First of all, China's recent sales of dollar assets and buying of yen assets arguably reflect a view that the dollar will depreciate and the yen will appreciate. Also, considering the level of asset allocations, China's net sale of US Treasuries in June was its first in 16 months. Perhaps the Chinese authorities are taking precautions against a rise in US interest rates. Meanwhile, the fact that China's buying of net purchases of yen assets was almost entirely in short-term JGBs may suggest that the concerns of the Chinese authorities over the long-term problems of the Japanese economy have not been dispelled, and that they increased their exposure looking for a short-term appreciation of the yen.