Japan To Buy Euro Debt

Japan plans to join China as a major buyer of debt in EU nations, particularly those in financial trouble.

“Japanese Finance Minister Yoshihiko Noda said Tokyo was considering using its euro reserves to buy about 20 percent of the AAA-rated bonds to be jointly issued by the euro zone to raise funds to support Ireland”, according to Reuters.

China has put has much as $10 billion into the purchase of the debt in Spain, Portugal, and perhaps Greece. The People’s Republic has taken more risk than Japan will. The bonds China has bought are not AAA rated. China can afford the risk. Its currency reserves reached $2.85 trillion at the end of last year.

China’s investment is probably strategic more that financial. The EU nations have been close allies of the US, particularly since WWII. The American government has supported the region over the years since the war. But, US deficits are historically high now and there is a battle in Congress over the cap on the national debt. America’s interests in Europe cannot be supported by multi-billion investments in bonds. The Obama Administration might argue that its financial support of the IMF is de facto support for the EU. That is not the same as direct purchases of troubled sovereign paper.

Japan may feel that it cannot allow China to be the sole significant direct supporter of the financial fates of troubled EU nations. It does not want its alliances in the regions to be compromised because China can offer nations like Spain theoretically unlimited aide. Japan has announced to the world that it is as interested in the future of the euro as any other country is.

The Japan and China investments make the absence of the US conspicuous. America will need to hope that its diplomatic and military ties to the region will continue to create strong and lasting bonds. But, money still talks.

Douglas A. McIntyre