Japan Bought $413M of Euro Rescue Bonds

Japan said it bought 10 percent of bonds sold by Europe’s rescue fund yesterday, halving its portion of purchases compared with a January auction, as the region’s crisis deepens.

The government purchased 300 million euros ($413 million) worth of debt in the European Financial Stability Facility’s 3 billion-euro bond sale, a Finance Ministry official said in Tokyo today on condition of anonymity.

The EFSF postponed the bond sale on Nov. 2 amid market turmoil prompted by Greek Prime Minister George Papandreou’s call for a referendum on the rescue pact for his country. Japan may have reduced its contribution from 20 percent on concern it may incur losses, according to a former Bank of Japan (8301) official.

“The euro’s been falling and there’s a risk it may drop even more,” said Junko Nishioka, currently chief Japan economist at RBS Securities Japan Ltd. in Tokyo. “The decision to buy fewer of the EFSF bonds reflects the government’s caution” toward holding euro-denominated assets, she said.

Japan bought more than 20 percent of the fund’s initial five-year, 5 billion euro bonds in January, and purchased another 1.1 billion euros of 10-year EFSF bonds issued in June.

The yen traded at 78.04 against the dollar and 107.27 per euro as of 1:41 p.m. in Tokyo. The European currency has lost 2.7 percent of its value against its Japanese counterpart in the past three months.

Prime Minister Silvio Berlusconi faces a budget vote today that will determine whether he has enough support to stay in power and implement austerity measures.

‘Too Soon’

China, the holder of the world’s largest foreign-currency reserves, has yet to indicate further investment, with the nation’s Vice Finance Minister Zhu Guangyao saying last week that it’s “too soon” to discuss additional purchases. China’s central bank declined to comment on any Chinese purchases in the bond sale, and calls to the nation’s finance ministry weren’t answered.

Japan, a nation with the largest debt burden in the industrialized world, is also in the progress of paying to rebuild from a record disaster at a time when its economic rebound shows signs of losing steam because of a strong yen.

Finance Minister Jun Azumi is trying to win parliamentary approval of the government’s 12.1 trillion yen extra budget, the nation’s third reconstruction package for the March earthquake. The ruling Democratic Party of Japan reached an agreement with some opposition parties today to extend the maturity of bond issued to fund rebuilding to 25 years from 10 years.

For yesterday’s sale, whose proceeds will be used to help finance the rescue of Ireland, the European bailout fund priced the bonds due February 2022 to yield 104 basis points more than the benchmark swap rate, according data compiled by Bloomberg. That compares to the facility’s existing 3.375 percent bonds due in 2021 that were priced to yield 17 basis points, or 0.17 percentage point, more than swaps when they were sold on June 15, Bloomberg data show. A basis point is 0.01 percentage point.

To contact the reporters on this story: Kyoko Shimodoi in Tokyo at kshimodoi@bloomberg.net; Aki Ito in Tokyo at aito16@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.