For the longest time their strategy was to:
1. Issue bonds at near zero or even negative yield.
2. Buy US bonds.
The country is still one of the largest foreign US debt holders at $1.191T, and interest from this debt pays for a significant fraction of the interest on their own debt.
If you issue debt at non-positive yield, then there is no interest on your debt to offset with the yield from US bonds.
I don't understand. Why would anyone buy their bonds when the US bonds yield more?
The issuer of debt is the seller of the bond.
That doesn't the answer the question of "who is buying these bonds instead of US Treasuries?"
Someone who is betting that the negative yield changes favourably. The bet is the same in positive yield regimes as well. This could happen due to a combination of deflation forecasts increasing and expectations of interest rates being lowered even further.