Japan is prepared to purchase over 20% of bonds that Euro-zone countries will be jointly issuing with the purpose of defusing tension and propping confidence in the Euro given the presistence of the European sovereign debt crisis, Finance Minister Yoshihiko Noda said on Tuesday in Tokyo.
The European Financial Stability Facility, EFSF, the Eurozone's rescue fund, is scheduled to issue debt worth several billions of Euros toward the end of the month to help finance the cost of an international bailout of Ireland, according to Japanese officials.
Noda told a press conference that Tokyo is thinking about purchasing an amount that tops 20% of sovereign debt, a level which he described as ‘adequate’.
Ireland has followed Greece in seeking an international bailout backed by the European Central Bank and the International Monetary Fund and there are rising fears that Portugal will be the next, and possibly Spain and Belgium. The increasing speculation has pushed the Euro sharply lower against the U.S. dollar and the Yen in the currency markets.
Noda said it is appropriate for Japan to make a commitment to help the EFSF gain confidence from market participants. He also said the Japanese government is plannign to use its foreign exchange reserves to purchase the bonds.
The EU rescue facility was established last year based on 440 billion Euros committed by the 16 nations belonging to the Euro-zone. It is designed to preserve financial stability of Europe's monetary union by providing temporary financial assistance to members in trouble.
EFSF is scheduled to issue five year Euro bonds, valued between 3 and 5 billion Euro at the end of the month. This follows a successful 5 billion issue earlier this month. Japan has the world’s highest international reserves (1.1 trillion) behind China (2.85 trillion). EFSF hopes to sell 16/20 billion Euro-bonds this year and another 10 billion in 2012.
Noda’s announcement arrives a week after China’s Vice-Premier Li Kegiang announced in Spain Beijing’s commitment to continue purchasing Spanish debt both in the primary and secondary markets.
For Japan and China helping to stabilize the Euro is crucial for their exports since the EU is a first line trade associate and a weak European currency impacts on their sales to the European continent.