Japan said it will provide $60 billion to the International Monetary Fund’s effort to expand its resources and shield the global economy against any deepening of Europe’s debt crisis.
Finance Minister Jun Azumi unveiled the commitment in speaking to reporters in Tokyo today before semiannual meetings of the IMF and World Bank in Washington April 20-22. Azumi said he hopes for an early agreement among Group of 20 members, who will also gather in Washington, on contributions to the IMF.
Japan, the world’s third-largest economy, becomes the largest donor yet outside of Europe to IMF Managing Director Christine Lagarde’s campaign to bolster the fund’s resources for the second time in three years. Azumi said that the stance of China, the world’s largest holder of foreign-exchange reserves, is in the same direction as Japan’s and that he hopes Japan’s pledge will accelerate the commitments of others.
“It’s in everyone’s best interest that Europe gets back on its feet as soon as possible,” said Matthew Circosta, an economist at Moody’s Analytics in Sydney. The announcement may “add stability to financial markets that had been weakening over the last few weeks as the crisis flared up again, particularly in Spain.”
The euro held losses against the dollar, trading at 1.3132 as of 5:13 p.m. in Tokyo, down 0.1 percent.
Europe needs to do more itself to strengthen financial firewalls, Azumi said. Japan may be the biggest contributor among non-European nations and will be expressing its views “more strongly than before,” he said.
Striking a Deal
No comment was immediately available from China’s finance ministry, after Japan yesterday briefed Chinese Vice Premier Wang Qishan on the move.
Azumi said that while it may not be possible to reach an overall agreement on expanding the IMF’s resources in Washington, it’s “fully possible” over a longer period. South Korean Vice Finance Minister Shin Je Yoon also said it may be difficult this week, when major countries including the U.S. and Canada haven’t stated their positions, Korean-language news provider Yonhap Infomax reported, citing his comments at a conference in Seoul.
“We are willing to contribute to the increase in IMF resources once the world reaches an agreement,” South Korea’s Deputy Finance Minister, Choi Jong Ku, said today. “We need to see discussions and moves by others before deciding how much we will give.”
The IMF is co-financing bailouts in Greece, Portugal and Ireland. It currently has about $380 billion available.
Lagarde said last week that she would scale down her request for $600 billion of additional resources as threats to the global economy diminished. The boost was designed to enable an additional $500 billion in lending. While euro nations committed to pitch in 150 billion euros ($197 billion), the U.S., the fund’s largest shareholder, has refused to join in.
“Some of the dramas that were envisaged” at the end of 2011 or early this year have not materialized and some “good news” has restored a little bit of confidence, Lagarde said in Washington April 12. The IMF is reassessing risks, “which will bring me to probably reassess a lower number of additional resources needed,” she said. The IMF chief today welcomed Japan’s pledge, calling on other nations to follow its lead.
Threat From Spain
Surging Spanish borrowing costs have highlighted the risk that the crisis will re-ignite and prompted a deputy economy minister, Jaime Garcia-Legaz, to call on the European Central Bank to resume direct intervention in the markets. Yields on Spain’s 10-year notes soared as much as 18 basis points, or 0.18 percentage point, to 6.16 percent yesterday. That’s the highest level since Dec. 1 and is edging toward the 7 percent level that pushed Greece, Ireland and Portugal into rescues.
“Europe’s sovereign debt crisis has clearly eased from last year’s critical situation following the region’s policy efforts, but we can’t be optimistic about the situation at all,” Azumi said. “It’s important to strengthen the IMF’s financial resources to ensure the crisis is contained, and this is important not only for the euro region but also for Asia as well as Japan.”
Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo, said today’s announcement may partly be intended to defuse criticism of Japan for unilateral interventions to weaken the nation’s currency.
“Japan wants to show its cooperation in the global economy,” Nishioka said. “Japan also knows that stabilization of the European economy will benefit its economy as well.”
The financial clout of Asia’s two biggest economies was illustrated by data yesterday showing China, the holder of the world’s largest currency reserves, remained the largest foreign U.S. creditor in February and Japan’s purchases of Treasuries picked up.
China’s holdings rose for a second straight month, increasing by 1.1 percent to $1.18 trillion, U.S. Treasury Department data show. Those of Japan, America’s second-largest lender, climbed 1.2 percent to $1.096 trillion as the Asian nation continued to intervene in the currency market to stem yen’s appreciation.
China’s currency reserves rose 3.9 percent in the first three months of 2012 from the previous quarter, reversing the first quarterly decline since 1998, according to the People’s Bank of China.
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