Bloomberg: Japan to Buy European Debt With Currency Reserves to Weaken Yen
Bold, yet brilliant, move.
Japan plans to use its foreign-exchange reserves to buy bonds issued by the European Stability Mechanism and euro-area sovereigns, as the nation seeks to weaken its currency, Finance Minister Taro Aso said.
“The financial stability of Europe will help the stability of foreign-exchange rates, including the yen,” Aso told reporters today at a briefing in Tokyo. “From this perspective, Japan plans to buy ESM bonds,” he said. The purchase amount is undecided, Aso said.
The move may help Prime Minister Shinzo Abe temper criticism of Japan’s currency policies from trading partners such as the U.S. The yen has fallen around 8 percent against the dollar since mid-November on Abe’s pledge to reverse more than a decade of deflation as his Liberal Democratic Party won an election victory last month.
“The Europeans would be happy to see Japan buy ESM bonds, so Japan can avoid criticism from abroad and at the same time achieve its objective,” said Masaaki Kanno, chief economist at JPMorgan Securities Japan Co. and a former central bank official.
The yen erased gains after Aso’s comments, reaching 87.81 per dollar, before appreciating again to 87.51 as of 7:14 a.m. New York time. The Japanese currency appreciated 0.3 percent to 114.86 per euro.
The ESM held its first debt auction today, selling 1.9 billion euros ($2.5 billion) of three-month bills at an average yield of minus 0.0324 percent. Investors placed bids for 6.2 billion euros of the securities, the Bundesbank said.