Japan's finance minister says the nation is in discussions to purchase Chinese government debt to diversify its foreign exchange reserves, but leaders of the two countries need to discuss the matter at a summit later this month before a formal decision can be made.

Japan's foreign exchange fund may buy up to 780 billion yen or 10 billion dollars of yuan denominated government bonds as part of a proposed bilateral currency and financial agreement.

Finance Minister, Jun Azumi, adds that purchasing Chinese debt would also help strengthen economic ties between the two countries and that Japan is committed in aiding China's efforts to nurture an offshore market for yuan denominated transactions.

Currently, most of Japan's reserves are dollar dominated assets. Economists and analysts say the country needs to further diversify its holdings in order to hedge against sudden fluctuations in the greenback.