China's increasingly aggressive sovereign wealth fund is poised to unleash a $10 billion (£5 billion) investment spree in Japan and is initially expected to set its sights on the energy sector.

Sources in the Japanese Government told The Times that the China Investment Corporation (CIC) may be considering the purchase of a “sizeable stake” in one of the country's largest oil and gas companies, Inpex.

The CIC is also understood to be actively recruiting in Japan to find a domestic fund manager to monitor its investments on the Tokyo stock exchange. The manager selected for the job is expected to be announced by the end of the month.

The CIC's plans to invest what could be as much as $10 billion across a range of Tokyo-listed stocks comes as Yoshimi Watanabe, the Japanese Financial Policy Minister, described the attention of the Chinese wealth fund as “most welcome”, when many traditional foreign investors have abandoned Japanese stocks in disgust.

Sources close to the minister added that the CIC would, after initially concentrating on buying stock exchange-listed shares, branch out into more direct investments - most probably real estate.

But a CIC stake of any size in Inpex would have particularly toxic political overtones. As a net importer of nearly all its energy, Inpex is among a handful of listed groups that are of critical strategic importance to Japan, although that does not officially place an upper limit on the size of any stake held by a foreigner.

Inpex is also the company expected to be Japan's “national champion”, as the country pushes to develop resources in the East China Sea. The search for oil and gas in that disputed section of ocean has already proved bitterly contentious and the source of heated diplomatic showdowns between Beijing and Tokyo.

The squabble arises over a nominal dividing line in the sea and how to divide fairly any resources that may eventually be discovered beneath it.

Analysts speculated that the discussion of a possible CIC stake in Inpex might portend a “friendship” investment ahead of the visit to Tokyo this year of Hu Jintao, the Chinese President. That visit is expected to yield an agreement on joint development of the East China Sea. The investment plans are understood to have been formed after a trip by the senior management of the CIC to Tokyo - the fund's first official visit to Japan since its creation late last year.

One Japanese MP close to the visit said that the “entire purpose” of the trip was to discuss how the CIC might invest in Japan and the various obstacles that it would encounter as it attempted to do so. The visit is also thought to have included discussions with relevant Japanese politicians and bureaucrats about how Tokyo might go about creating its own sovereign wealth fund - a project now officially under way.

But attempts to establish a fund to manage a portion of the country's $1trillion of foreign currency reserves is certain to meet strong opposition from conservative quarters. The Ministry of Finance is understood to be particularly opposed to the idea of a fund, viewing sovereign wealth

funds as the preserve of developing countries, rather than that of full Group of Seven members such as Japan. The planned investment in Japan comes as the United States has grown increasingly defensive about the activities of sovereign wealth funds. Lou Jiwei, the CIC chairman, indicated this month that the fund most likely would avoid markets in Europe because it had not been made to feel welcome there.

Sovereign power

June 2007 CIC takes a $3 billion stake in US private equity firm Blackstone

September 2007 The fund officially launches with initial capital of $200 billion

December 2007 Spends about $100 million on a stake in Hong Kong's China Railway Group

December 2007 Takes a 9.9 per cent stake in Morgan Stanley worth $5 billion

February 2008 Reports suggest that CIC is in talks about investing $4 billion in a JC Flowers vehicle set up to buy ailing financial groups

February 2008 CIC and China Shenhua Group have been in informal talks to buy a 15.85 per cent stake in Australia's Fortescue Metals Group in a deal worth $2 billion, reports suggest

February 2008 Considers the purchase of a “sizeable stake” in Inpex, one of Japan's largest oil and gas companies

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive