Japan to Keep Buying EFSF Bonds, But…

By: EW News Desk Team   Date: 1 November 2011

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01 November 2011

A senior official from Japan has confirmed that Japan will continue purchasing EFSF bonds, but stopped short of a commitment to inject additional liquidity into Europe’s emergency bailout fund.

In an Asian tour to market the sale of EFSF bonds, Klaus Regling, chief executive officer of the EFSF told reporters that “the Japanese government will continue to buy the EFSF bonds we have been issuing.”

According to a report by the Mainichi Daily, Regling’s comments came after a meeting with Japanese officials, including the country’s top financial diplomat Takehiko Nakao.

Japan has in recent weeks shown itself to be a willing buyer of EFSF bonds. Earlier this year, the Japanese government purchased a total of 2.7 billion euros, or approximately 20 percent of overall issuances, as part of efforts to aid Ireland and Portugal.

However, with the Europeans now asking foreigners to put up cash for a more risky fund, without the guarantees of EFSF bonds, Japan might also grow wary of committing too soon.

Japan’s caution mirrors that of its Beijing counterpart. Last week, a Chinese vice finance minister said that China must see the details of a new European bailout fund before making any commitments.

"We, of course, must wait until its structure is extremely clear," Zhu Guangyao told reporters last week. "And moreover, this investment must be decided on after serious, technical discussions."

A weekend commentary from the state-run Xinhua news agency also warned that while China is ready to cooperate in a "win-win manner," Europe shouldn't expect a white knight and should be prepared to make concessions.

Japan's contribution alone would be far from enough to fund the increase in the EFSF firepower by the fourfold or fivefold that would enable it to provide guarantees for about €1 trillion ($1.4 trillion).

The senior Japanese official said it may be difficult for Tokyo to increase its 20% share, saying the decision depends on the amount it has in euros in cash in foreign-currency reserves, as well as elements such as the yields on the EFSF bonds, reported the Wall Street Journal. 

The official also said Japan made no commitment on a plan to set up a euro-zone special-purpose vehicle to buy bonds and raise funds for bank recapitalization, which Mr. Regling brought up in his talks.

As part of a package to stem the region's sovereign-debt crisis, European leaders last week agreed to strengthen the EFSF through two mechanisms: a special fund and an insurance program for sovereign bonds. Their details are unclear, but European leaders are hoping to partly fund the expansion with investments from cash-rich emerging economies such as China.


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