A?person checks?yen notes. [CFP]

Japan is likely to purchase up to US$10 billion in Chinese government bonds under a bilateral currency and finance pact being discussed by the two countries. It is believed the move will help Japan to strengthen ties with its near neighbor and largest trading partner.

Officials from both sides are currently studying details of the investment plan ahead of a visit to China by Japan's Prime Minister Yoshihiko Noda on Dec. 25. It is hoped that Noda will sign a formal agreement with Chinese leaders during his two-day visit.

The pact would allow the Japanese government to shift part of its foreign reserves into yuan-denominated Chinese debt as Japan looks to diversify its foreign reserves, which are now mainly in US dollars.

It's is also thought the move could help to elevate the status of China's yuan, although Japan's Finance Minister Jun Azumi said Noda reiterated Japan's confidence in the US dollar in a phone call to US President Barack Obama.

More and more investors have become interested in yuan-dominated products, as the sluggish global economy nudges US and European interest rates to near-record lows.

This year, the issuing of yuan-dominated bonds more than tripled to about US$17.6 billion in Hong Kong and QFII quota has made it easier for foreign central banks to buy yuan-dominated bonds.

China's business press carried the story above on Wednesday.