Japan plans to buy bonds issued by Europe’s financial-aid funds, its finance minister said, joining China in assisting the region as it battles against a debt crisis that prompted Irish and Greek bailouts.
“There is a plan for the euro zone to jointly issue a large amount of bonds late this month to raise funds to assist Ireland,” finance minister Yoshihiko Noda said at a news conference in Tokyo today. “It’s appropriate for Japan to make a contribution as a leading nation to increase trust in the deal. We want to buy more than 20 per cent.”
The euro gained against the yen as the statements of support showed that the country with the world’s second-largest foreign-exchange reserves, after China, may help stem the risk of the crisis spreading.
Portugal’s borrowing costs jumped last week as concern deepened that nation may be unable to avoid tapping the European Union’s rescue fund.
China has also voiced support for Europe, with vice premier Li Keqiang last week expressing confidence in Spain’s financial markets and pledging more purchases of that country’s debt.
The euro climbed to 107.50 yen this morning in Tokyo from 107.12 yen in New York yesterday, when it touched 106.83 yen, the lowest level since September 14th. The single currency traded at $1.2937 from $1.2951.
Japan will use its foreign-exchange reserves to buy more than a fifth of bonds to be issued later in January by the European Financial Stability Facility, Mr Noda said. Japan’s reserves total $1.096 trillion, the government said today.
The stability facility, overseen by euro-area governments, plans to raise up to €16.5 billion to help finance the Irish bailout, the European Commission said last month.
It plans to issue between €3 billion to €5 billion worth of the AAA-rated bonds later this month, meaning Japan may spend more than €1 billion.
“I think we cannot rule out the possibility that the Japanese government” may need to shift part of its reserves to euro from US dollars to buy the bonds, Tohru Sasaki, head of Japan rates and foreign exchange research at JPMorgan Chase & Co. in Tokyo, said in a note to clients today.
The European Commission said last month that Europe’s financial aid funds for distressed governments will sell bonds to raise as much as €34.1 billion ($44 billion) for Ireland in 2011 and €14.9 billion in 2012.
Portugal’s six-month borrowing cost jumped to 3.686 per cent at a bill sale last week, up from 2.045 per cent in September. The country plans to borrow as much as €1.25 billion tomorrow by issuing debt repayable in October 2014 and June 2020, the nation’s debt agency said on January 6th.
Mr Noda didn’t mention Portugal at today’s news conference.
Bloomberg