Japan and India eye new currency swap agreement

Indian rupees
Image caption The Indian rupee has fallen against the US dollar hitting record lows in recent weeks

Japan and India are set to unveil a new currency swap agreement aimed at easing potential short-term liquidity problems.

The pact will allow them to swap their currencies for US dollars and tap into each other's foreign exchange reserves.

The move comes amid increased volatility in both the Japanese yen and the Indian rupee.

Japan's finance minister Jun Azumi was quoted by Reuters news agency, saying negotiations were in the final stages.

The deal is expected to be signed during Japanese prime minister Yoshihiko Noda's visit to India this week.

Analysts said the deal will help both nations stabilise their currencies, especially in the current uncertain global economic environment.

"Emerging economies overall are being shaken by the eurozone sovereign debt crisis," said Tsuyoshi Ueno, a senior economist at NLI Research Institute.

"Currencies in emerging economies get volatile when European banks pull out capital," he added.

"A dollar swap arrangement can help emerging economies as it promises a supply of dollars in an emergency."

The previous currency swap deal between the two nations, signed in 2008, has expired.

More on this story