Japan Said to Have Bought 10.3 Percent of ESM Bonds in January

Japan purchased 10.3 percent of bonds issued by the European Stability Mechanism last month, a step which may help to deflect overseas criticism of the country’s monetary easing.

The Japanese government bought 400 million euros ($545 million) of the European rescue fund’s debt auctioned in January, a finance ministry official who asked not to be named due to the ministry’s policy said today.

Japan may point to its efforts to aid Europe to try to deflect complaints from officials in that region about measures to drive down the yen. The currency has fallen more than 17 percent against the euro in three months as Prime Minister Shinzo Abe calls for unlimited monetary easing to end more than a decade of deflation.

“Japan’s purchase of ESM bonds can help quiet overseas criticism on the policy of weakening the yen,” said Takahiro Sekido, a strategist in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd. who formerly worked at the Bank of Japan. Countries know Japan’s debt purchases contribute to global financial stability and they probably won’t single out Japan for criticism at the Group of Twenty meeting in Moscow this month, Sekido said.

The yen slid 1 percent to 125.79 per euro, the least since April 2010, before trading at 125.56 at 4:51 p.m. in Tokyo. It sank 0.6 percent to 92.15 per dollar after earlier touching 92.30, the weakest since June 2010.

The ESM was inaugurated in October 2012 and will run in parallel with the European Financial Stability Facility, the temporary rescue program formed in 2010 to provide loans to European Union countries. Japan had purchased about 7 billion euros of EFSF bonds, or 6.7 percent of total issuance, by the end of 2012, according to the Finance Ministry.

Push Back

Japanese officials have pushed back at criticism of the nation’s monetary policy, with Deputy Economy Minister Yasutoshi Nishimura asking for Japan’s policies to be evaluated overall.

“Europe is in no position to criticize Japan,” Nishimura, 50, said in an interview on Jan. 24. “Europe has brought about a prolonged weakness of the euro as a result of their own policies, while Japan has supported Europe through purchases of bonds.”

In the U.S., Federal Reserve Bank of St. Louis President James Bullard said Jan. 10 that he’s “a little disturbed” by Japan’s stance and the risk of “beggar-thy-neighbor” policies. U.S. automakers have said an undervalued yen distorts trade and stunts job growth for American manufacturers.

European Central Bank governing council member Jens Weidmann last month warned against “politicizing” the yen exchange rate. Michael Meister, the parliamentary finance spokesman for German Chancellor Angela Merkel’s party, said that Japan risks retaliatory action by G-20 nations.

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