Japanese move fails to impress markets

JAPAN’S commitment to buy eurozone bonds this month to help Europe cope with the continuing debt crisis failed to impress the markets yesterday and the cost of 10-year Portuguese bonds stayed close to the recent high of 7%.

Speaking in Tokyo after yesterday’s cabinet meeting Finance Minister Yoshihiko Noda said his government is considering buying about 20% of euro bonds to be jointly issued later this month to raise funds to support Ireland.

Japan would use its existing euro reserves to pay for the debt, Noda said.

His comments failed to ease growing fears that Portugal will soon follow Greece and Ireland and opt for an EU/IMF bail out.

The buying up of 20% of the next bond issue by the Japanese would be of some help to the debt-plaguedeurozone, according toDermot O’Leary, chief economist, Goodbody Stockbrokers.

“I don’t think it alters the picture dramatically,” he said

“We are getting a deep sense of deja vu with the emerging situation in Portugal,” he said.

Speculation has been building that Portugal will be next in line to request aid, with the major factor in that speculation being the continuing rise in Portuguese bond yields, well above rates that would be paid on an aid package from the IMF/EU, he said.

Reports of ECB intervention in the bond market lowered rates marginally for peripheral countries yesterday but “the experience of Ireland and Greece in 2010 suggests that this may be just temporary relief,” Mr O’Leary said.

Internationally, analysts also doubted if Japan’s pledge to buy eurozone bonds this month in a show of support for Europe would offer the euro much relief.

The euro had earlier climbed near $1.30 after Japan’s show of support for the European Financial Stability Facility (EFSF), but that momentum faded after Tokyo said it would use its existing euro reserves to pay for the debt.

The markets today could also prove crucial for euro sentiment if Portugal, scheduled to sell up to €1.25 billion of bonds in a fund raising exercise, is forced to withdraw due to the high level of interest rates demanded by investors.

A nervous Portuguese government said the country had no plans to seek a bailout.

It is expected also that Italy and Spain will move to raise funding tomorrow and if they meet resistance, the euro, which made modest gains at one point yesterday, could fall sharply in the days ahead, analysts warned.