"World Comes Together to Save the Euro"; Japan Officially Joins the Battle

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
http://globaleconomicanalysis.blogspot.com
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