Japan, China to Help Europe Solve Crisis Via IMF, Azumi Says

Japan's Finance Minister Jun Azumi
Jun Azumi, Japan's finance minister. Photographer: Kiyoshi Ota/Bloomberg

Japanese Finance Minister Jun Azumi said that his nation and China are committed to help resolve the European debt crisis through the International Monetary Fund once euro region members take further steps themselves.

“We shared the view that Europe needs to make more efforts to create a bigger firewall,” Azumi told reporters in Beijing yesterday after meeting Chinese Vice Premier Wang Qishan. “We also agreed to act together as the IMF will probably ask the U.S., Japan and China” to help boost its lending capacity.

The meetings deepened dialogue between Asia’s two largest economies after a visit by Prime Minister Yoshihiko Noda to Beijing in December, and contrast with periodic tensions between the two over maritime boundaries. The continued readiness of Japan and China to help offers Europeans an inducement as they close in on a 130 billion-euro ($170 billion) Greek bailout.

“Showing China and Japan are united to support the debt crisis is good news for European markets,” Hiroshi Miyazaki, chief economist at Shinkin Asset Management Co. in Tokyo, said before the meeting. “It may still take some time for the two to decide specifics as Europe hasn’t reached agreement on a solution within the region.”

Europe needs a bigger so-called firewall of added funding to contain the crisis, even as Greece shows some improvement in solving its woes, the Japanese finance chief said. Azumi, who also met Chinese Finance Minister Xie Xuren during his visit, said he asked China to make its currency more flexible.

Bond Purchases

Following on an agreement during Noda’s December visit, Japan has applied to buy about $10 billion of Chinese bonds, a Japanese finance ministry official said yesterday in Beijing. The purchases will start soon, he said, speaking on condition of anonymity because of ministry policy. Japan has joined countries from South Korea to Thailand seeking to diversify foreign-exchange reserve holdings into yuan.

The euro advanced today ahead of a meeting of European finance ministers with Greek Prime Minister Lucas Papademos. The currency gained 0.5 percent to $1.3210 as of 10:47 a.m. in Tokyo.

China is willing to get “more deeply” involved in resolving Europe’s debt crisis, and the continent must send a clearer message to show how it’s working to strengthen its finances, Premier Wen Jiabao said at a joint press conference on Feb. 14 in Beijing with EU President Herman Van Rompuy.

$500 Billion Goal

The IMF proposed last month to boost its lending funds by as much as $500 billion to insulate the global economy against any deterioration of Europe’s sovereign crisis.

American officials have indicated the U.S. isn’t prepared to boost its commitments to the Washington-based lender. Even so, Treasury Secretary Timothy F. Geithner urged the IMF to support Greece’s plan to cut spending, calling it a “very strong and very difficult package of reforms, deserving of support of the international community and the IMF.”

The G-20 in April 2009 decided to triple the fund’s resources as part of plans to pull the world out of recession. At that time, the U.S. and Japan each contributed $100 billion, the EU $178 billion and China $50 billion.

“Japan and China are prepared to support the IMF’s important role in addressing the European sovereign debt crisis, on the basis of further efforts by the EU and euro area members and in cooperation with G-20 and IMF members,” according to a statement issued by the Japanese finance ministry yesterday after Azumi and Wang met.

G-20 Meeting

The European Union wants Group of 20 nations to pledge more resources to the International Monetary Fund to fight the global financial crisis, according to a planning document prepared for a Feb. 25-26 meeting of G-20 finance chiefs and central bankers.

Azumi’s talks on China’s currency follow an increasing division among investors over prospects for the yuan’s appreciation. China should expand the flexibility of the yuan now that’s the case, said Wu Xiaoling, a former deputy governor at the People’s Bank of China.

“The uncertainties in global financial markets present opportunities for the yuan’s exchange rate reform,” Wu said at a financial forum in Shanghai on Feb. 18. “China should take the opportunity to make full use of the current trading band and improve flexibility in the yuan.”

While China allows its currency to trade 0.5 percent against the U.S. dollar on either side of the reference rate, the yuan hasn’t moved more than 0.15 percent from the fixing this month, data compiled by Bloomberg show.

Yuan Policy

Expectations for a drop in the Chinese currency’s value have reversed, with non-deliverable forward contracts now forecasting no change or some appreciation, the central bank said in its quarterly monetary policy report posted on its website on Feb. 15.

Europe’s crisis has cooled demand for exports from both China and Japan, the world’s second- and third-largest economies. Officials in both countries have responded to signs of weaker growth prospects, with China deciding Feb. 18 to cut the amount of cash banks must set aside as reserves and the Bank of Japan last week boosting asset purchases by 10 trillion yen ($126 billion.)

Wen and Noda agreed in December to promote direct trading of yen and yuan without using dollars and to encourage the development of a market for the exchange, to cut costs for companies.

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