At long last, and after decades of trying, Japan may have found a way to weaken its currency: buy European bonds. The irony is that is not Japan’s intent. The non-plan to weaken the Yen could conceivably “work” if done in size, although I rather doubt Japan commits that much. Regardless, it sure won’t do a damn thing to “Save the Euro”.

Please consider Japan Joins China in Assisting Debt-Crisis-Hit Europe

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 bailouts of Ireland and Greece.

“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 percent.”

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.

“This signals that the world is coming together” to save Europe, said Noriaki Matsuoka, an economist at Daiwa Asset Management Co. in Tokyo. “But it’s unlikely the euro will maintain its current strength. It’s unclear whether the market will be able absorb all the bonds being issued by the problematic euro-zone nations.”

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, Noda said. Japan’s reserves total $1.096 trillion, the government said today. That compared with China’s $2.648 trillion, according to data compiled by Bloomberg.

“I think we cannot rule out the possibility that the Japanese government” may need to shift part of its reserves to euros from U.S. 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.

“Japan’s finally contributing to the stabilization of the global financial system,” said Hiroshi Miyazaki, chief economist at Shinkin Asset Management Co. in Tokyo. “This is good news for the euro and it’s good news for the global financial system. Since Japan has a current-account surplus, in some ways it has a responsibility to help those with a capital shortage.”

A “Come Together” Tribute

Mike “Mish” Shedlock
Click Here To Scroll Thru My Recent Post List