Business

Japan buys 10% of eurozone bailout fund's bond issue

yen notes
Image caption Japan's yen has been hit by the eurozone problems

Japan's Ministry of Finance has confirmed that it bought 10% of the latest bonds issued by the eurozone's rescue fund.

The ministry said it purchased 300m euros ($413m; £257m) of bonds issued by the European Financial Stability Facility (EFSF).

Japan's purchase is the smallest amount it has bought so far from the fund.

Eurozone leaders have been seeking increased investment in the fund to help finance debt-laden economies.

Last month, they agreed to increase the size of the bailout fund to 1tn euros.

Japan has bought bonds from the EFSF on three previous occasions taking its holdings to 2.975bn euros.

'Cross-currency risk'

According to the Japanese Ministry of Finance, the first time that the EFSF raised money, Japan bought 1.25bn euros, or 20.5%, of the total bonds issued.

That was followed by a purchase of 1.1bn euros, or 22%, in the second round and 550m euros, or 17%, of bonds issued in the third.

Analysts said the lower level of purchase in the latest round has been driven mostly by the state of Japan's foreign exchange holdings.

"Japan is extremely dollar heavy in their reserves," Naomi Fink of Jefferies told the BBC, adding that unless Japan sold US dollars, the amount of money it has to invest in euros is limited.

Ms Fink explained that at present Japan is committed to holding its dollar reserves and so far authorities had not shown an inclination to swap them for euros.

"That would be a slight shift in policy and would also add some cross-currency risk," she added.

Yen factor

Japan, the world's third-largest economy, has voiced its support for a rescue plan for the eurozone's troubles economies, not least because the region is one of the biggest markets for Japanese exports.

At the same time, stability in the eurozone is also key for Japan's currency policies.

The recent uncertainty about the eurozone debt crisis saw many investors dump their euro holdings and buy the yen and yen-denominated assets, which are being considered by many as safe-haven assets.

That led to a surge in the yen's value taking it to post war highs against the US Dollar. A strong yen harms Japan's export-dependent economy making goods more expensive to foreign buyers and reducing profit margins for exporters.

The BBC's Roland Buerk in Tokyo said that stability in the eurozone is "very much in Japan's national interest".

"This (the money spent on the latest bond buying by Japan) is really quite small compared to the amount that Japan has been spending on intervening in the currency markets," he said.

In August, authorities pumped in 4.5tn yen ($57.6bn; £36bn) in an attempt to weaken the yen.

That was followed by another intervention last month believed to be in the range of as much as 8tn yen.

"Perhaps it's cheaper to sort out the problem at the other end, to help Europe go back to stability," our correspondent added.

More on this story

Related Internet links

The BBC is not responsible for the content of external Internet sites