Japan to buy Europe bonds to soothe debt: Aso

By Hiroshi Hiyama, AFP

TOKYO — Japan’s new finance minister said Tuesday that Tokyo would buy bonds issued by Europe’s permanent bailout fund to help soothe the eurozone’s debt problems and stabilize the under-pressure yen. Taro 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 finance ministry official told AFP the bond buying could start as early as Tuesday, 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 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 Tuesday.

Japan has suffered as demand dropped off on the debt-hit continent and reports Tuesday said Tokyo was mulling an extra budget worth about 13.1 trillion yen (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-Fukushima Japan struggles to cement a recovery. The Liberal Democratic Party government, which swept to power last month, was also eyeing a stimulus package worth at least 20 trillion yen aimed at creating more domestic demand and new jobs, the Nikkei business daily 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 around 75 against the 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 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. But reports Tuesday 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 crisis at Fukushima, more expensive. In Tokyo forex trading on Tuesday afternoon, the euro was up slightly at 114.83 yen from 114.75 yen before Aso’s comments, while the U.S. dollar bought 87.43 yen from 87.48 yen in morning deals. Europe’s permanent bailout fund was initially supposed to come online in July but only became operational in October after it was delayed by a challenge at the German Constitutional Court. Tokyo’s new spending would be financed by borrowing, and plans include making more schools and hospitals earthquake resistant, upgrading ageing infrastructure and funding Japan’s public pension program, the reports said. But big spending plans have stoked fears over Japan’s already tattered fiscal health, the worst among industrial countries with public debt standing at more than twice the size of the economy.