Japan to buy EU bonds to bolster yen, soothe crisis


Wed, Jan 09, 2013 - Page 15

New Japanese Minister of Finance Taro Aso yesterday said that Tokyo would buy bonds issued by the EU’s permanent bailout fund to help soothe the eurozone’s debt problems and stabilize the under-pressure yen.

Aso told reporters the new government would tap foreign exchange reserves to pay for the bonds, but declined to say how much it planned to buy.

A Ministry of Finance official told reporters the bond-buying could start as early as yesterday — when the European Stability Mechanism (ESM) begins selling the paper — adding that Japan “will make a purchasing decision after seeing the terms of the issuance.”

Japan, which counts Europe as a major export market, previously bought billions of US dollars in bonds issued by the ESM’s predecessor, the European Financial Stability Facility.

“Stabilizing Europe’s financial crisis will eventually contribute to the stability of currency [prices], including the yen, and so we plan to keep purchasing ESM bonds using foreign reserves,” Aso said.

Japan has suffered as demand dropped off on the debt-hit European continent and reports yesterday said Tokyo was mulling an extra budget worth about ¥13.1 trillion (US$150 billion) to boost the world’s third-largest economy.

About 40 percent of that figure would be earmarked for public works projects, they said, as post-tsunami Japan struggles to cement a recovery.

The Liberal Democratic Party government, which swept to power last month, was also eying a stimulus package worth at least ¥20 trillion aimed at creating more domestic demand and new jobs, the Nikkei Shimbun reported.

Europe’s debt crisis has seen four countries ask for bailout cash to help pay their bills, while there were fears that others, including Italy and Spain, would follow suit as their borrowing costs surged.

However, those concerns have eased since September, when the European Central Bank promised to buy bonds of struggling nations to keep rates down.

Amid the turmoil, the safe-haven yen hit record highs of about ¥75 against the US dollar in late 2011, sparking panic among Japanese exporters whose goods are made more expensive by a strong currency.

However, the unit has since weakened and dropped into a steep decline in recent weeks as Japanese Prime Minister Shinzo Abe, who took office last month after a landslide election win, vowed to press the Bank of Japan for more aggressive monetary easing.

However, reports yesterday quoted Japanese executives — who pressed officials for months on the surging yen — expressing concern that a further quick drop in the currency could shake investor confidence, dealing a blow to the economy.

A weaker currency also makes fuel imports, which have risen steeply in the wake of Japan shutting down its nuclear plants after the 2011 meltdown at the Fukushima Dai-ichi nuclear power plant, more expensive.