Japan pledged to buy eurozone bonds this month in a show of support for Europe’s struggle with a smoldering debt crisis, but market players doubted the gesture would offer the euro much relief.
Japanese Minister of Finance Yoshihiko Noda told reporters after a Cabinet meeting yesterday that Tokyo was considering buying about 20 percent of eurozone bonds to be jointly issued later this month to raise funds to support Ireland. Japan would use its existing euro reserves to pay for the debt, Noda said.
Japan’s offer comes days after China reaffirmed its commitment to buy Spanish debt and analysts said it reflected both Tokyo’s concern about the impact of the crisis on its export-reliant economy and an effort to reassert itself on the global stage.
“I think it’s appropriate for Japan to purchase a certain amount of bonds to boost confidence in the EFSF [European Financial Stability Facility] and make a contribution as a major country,” Noda said.
The EU set up the 440 billion euro (US$569 billion) fund as a safety net for heavily indebted eurozone nations, but it failed to deter investors from betting on more bailouts.
A finance ministry source told Reuters that Japan would -continue to buy bonds issued under the scheme as part of its commitment as a G7 nation to stabilizing the world economy and containing the debt crisis. The official declined to be named because he was not authorized to speak to the media.
Tokyo’s pledge also follows reports that the European Central Bank was buying Portuguese bonds on Monday, after speculation that Portugal would soon follow Greece and Ireland in seeking an international bailout pushed the euro to four-month lows.
Breaking ranks with a chorus of European officials who have insisted that further rescues were by no means inevitable, Finnish Minister of Finance Jyrki Katainen said yesterday that Ireland might not be the last country to seek financial aid.
Speaking to a local broadcaster, Katainen also said Lisbon needed to act decisively to calm markets, though he declined to say whether there were any talks about loans to Portugal.
Japan’s announcement lifted the single currency as far as US$1.2992 on trading platform EBS from around US$1.2925.
However, it pulled back later when it became clear that Tokyo would use its existing euro reserves to buy the bonds and analysts expected the impact of Japan’s gesture to be short-lived.
“I don’t think these comments change the backdrop for the euro at all,” said Todd Elmer, currency strategist for Citi in Singapore. “Despite the fact that we’re seeing this groundswell of international support, it doesn’t really change or address the underlying problem and that’s not going to change until the European authorities themselves come up with a more comprehensive solution.”
Analysts said that besides concern that an escalating debt rout in Europe could thwart Japan’s own recovery, Tokyo might also be acting to preserve its standing in global economic diplomacy after Beijing seized the initiative.
China’s declared support for Spain — the eurozone’s fourth-largest economy seen most at risk of contagion from Portugal’s troubles — follows Beijing’s pledges last year to buy bonds issued by Greece, the first eurozone nation to need a rescue.
“With China pledging to buy eurozone bonds and its currency-based diplomacy increasingly prominent, Japan appears to be trying to follow suit to secure European support in possible future negotiations, either with the United States or China,” said Yasunari Ueno, chief market economist at Mizuho Securities.
Analysts also say that just like Beijing, at odds with Europe and the US over its yuan policy, Tokyo could do with some goodwill capital after its market intervention to curb the yen drew fire from its trading partners.
Data released yesterday confirmed that Japan spent more than US$25 billion to halt the yen’s rise in September last year out of its reserve stockpile that stood at US$1.1 trillion at the end of last year — second only to China’s US$2.85 trillion.
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