Japan to buy a fifth of euro bonds at sale

JAPAN says it will buy a fifth of the gilts on offer at a planned auction of region-wide Eurozone bonds (or “e-bonds”) later this month.

The comments, made by finance minister Yoshihiko Noda, sparked a rally in the euro versus the yen, with traders speculating that Japan would have to load up on the single currency to make the purchases.

However, analysts expect the relief for the euro to be short-lived. Japan has $1 trillion in foreign reserves already and will only require a few million to make its purchase.

The e-bonds are going on sale to fund the European Financial Stability Facility in an attempt to boost confidence in politicians’ commitment to the Eurozone. But with a rescue for Portugal looming, likely to cost a similar amount to Ireland’s €85bn (£70.6bn) package, the region’s bailout resources will also be grateful for the boost.

E-bonds are seen to be good investments because they deliver higher yields than French or German gilts but have the backing of Europe’s most stable economies.

Despite Japan’s move, economists are pessimistic. An update from Capital Economics said yesterday that even if Portugal agrees to take a bailout, “we fear... this will signal the start of a new, more dangerous, phase” in the crisis.

Worries continue despite Japan being the second non-European country to state interest in Eurozone debt.