Japan is in talks with South Korea about buying its government bonds, senior officials from both countries said, a further sign that Tokyo it is beginning to diversify its reserves away from the dollar after agreeing to buy government debt from China last month.
Finance ministers and central bank chiefs from the two countries are due to meet in Manila on May 3 for Asian Development Bank meetings and Japan's Asahi newspaper said an announcement could be made then.
"Discussion has been under way for quite some time but I don't know about the report that an announcement will be made," South Korean Vice Finance Minister Shin Je-yoon said by telephone in Seoul.
Japan's reserves stood at $1.3 trillion at the end of last month, the second-largest after China's currency reserves. Japan does not release a detailed breakdown but the bulk of its reserves are believed to be held in US Treasuries as Japan as repeatedly intervened to try to weaken its currency versus the dollar. Japan has agreed to buy some $10 billion in Chinese government debt, the first major economy to do so, and a move which helps bolster the credibility of the yuan as an international currency.
China, Switzerland, Thailand and Malaysia are among other central banks that have invested in South Korean local-currency bonds, as they seek to diversify foreign exchange reserves away from US dollar-denominated assets.