“We don’t believe the effect of the stimulus will fade,” Yosano said.

TO BE NOTED: From Bloomberg:

"Yosano Says Japan’s Trust in Treasuries ‘Unshakable’ (Update1)

By Keiko Ujikane and Takashi Hirokawa

June 12 (Bloomberg) -- Japanese Finance Minister Kaoru Yosano said his government is confident about the outlook for U.S. Treasuries, signaling the second-biggest foreign holder of the securities will keep buying them amid record sales.

“We have complete trust in the fact that the U.S. views its strong-dollar policy as fundamental,” Yosano, 70, said in an interview in Tokyo on June 10 before attending a Group of Eight meeting of finance ministers starting today in Italy. “So our trust in U.S. Treasuries is absolutely unshakable.”

The U.S. government has come under fire from some creditors as spending to prop up its economy is projected to quadruple its budget deficit to $1.85 trillion in the year ending Sept. 30. China and Russia, the largest and third-largest single holders of the debt, have said they may reduce their reliance on dollar- denominated assets, fueling a surge in Treasury yields to a seven-month high.

“Japan is, of course, mindful that selling Treasuries will cause the yen to strengthen and that would hurt corporate profits,” said Chotaro Morita, chief strategist in Tokyo at Barclays Capital Japan Ltd. in Tokyo. “Even with their strong ties, it’s possible Japan would consider selling U.S. Treasuries should the dollar say, halve in value.”

Yields Jump

Ten-year Treasury yields fell two basis points to 3.83 percent after Yosano’s remarks and have jumped from a record low of 2.04 percent in December. They advanced to their highest since Oct. 16 this week after Alexei Ulyukayev, first deputy chairman of Russia’s central bank, said on June 10 his country may switch some of its Treasury holdings to International Monetary Fund bonds.

China Premier Wen Jiabao called in March for the U.S. “to guarantee the safety of China’s assets” and central bank Governor Zhou Xiaochuan has proposed a new global currency to reduce reliance on the dollar.

“We have complete faith in U.S. economic and fiscal policy,” said Yosano, who is also the minister in charge of Japan’s banking sector and economic policy. “The U.S. dollar’s position as the world’s reserve currency isn’t under threat.”

U.S. President Barack Obama has tried to assuage investor concern by pledging to cut the shortfall in half by the end of his first term. Obama may borrow a record $3.25 trillion this fiscal year, almost four times last year’s amount, according to Goldman Sachs Group Inc.

Strong U.S. Currency

A strong U.S. currency benefits Japan by increasing corporate profits in yen terms and preserving the competitiveness of exports. A collapse in global demand and the yen’s 8.5 percent advance against the dollar since September caused earnings to tumble a record 69 percent last quarter.

Japanese investors are the biggest foreign holders of Treasuries after China with $686.7 billion of the securities in March, according to the Treasury Department. To reduce Japan’s investment risk, some lawmakers have argued the U.S. should sell yen-denominated debt, an idea Yosano said the government wouldn’t pursue.

“We have no intention of asking for that,” Yosano said. “It’s up to the U.S. to decide whether to issue dollar- denominated bonds or samurai yen-denominated bonds.”

Masaharu Nakagawa, finance spokesman of the opposition Democratic Party of Japan, said last month the government should ask the U.S. to sell debt denominated in yen, so-called samurai bonds, over his concern that the dollar may weaken.

Poets in Family

Yosano, a cancer survivor who became a lawmaker in 1976, is the grandson of Tekkan and Akiko Yosano, poets whose work is taught to school children. The son of a diplomat, Yosano is fluent in English and studied in Cairo for three years when he was a teenager. He graduated with a law degree from Tokyo University in 1963.

Under Yosano’s stewardship, Japan in April unveiled a record 15.4 trillion yen ($158 billion) stimulus package to pull the nation out of its deepest postwar recession. The minister said new measures may not be needed because packages announced since last year have already started to support the economy.

“We don’t believe the effect of the stimulus will fade,” Yosano said.

In the long term, Japan will need to reduce its reliance on exports and foster spending at home to sustain growth, he said.

“Ceaseless efforts are needed to create new technology and products,” Yosano said. “We need to increase domestic demand to invigorate the economy and make a significant contribution to global growth.”

To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net; Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net

coming from Japan’s opposition party — which isn’t exactly steaming ahead towards victory

TO BE NOTED: From Alphaville:

"Samurai-ed: Japan ‘would avoid dollar bonds’ Posted by Tracy Alloway on May 13 10:12.

Japan voiced some anti-dollar/US Treasuries remarks and a future preference for samurai bonds late Tuesday.

From the BBC:
Japan’s opposition party says it would refuse to buy American government bonds denominated in US dollars, if elected.

The chief finance spokesman of the Democratic Party of Japan, Masaharu Nakagawa, told the BBC he was worried about the future value of the dollar. Japan has been a major buyer of US government bonds, helping the US finance its Federal budget deficits.

But, he added, it would continue to buy bonds only if they were denominated in yen - the so-called samurai bonds.

Yen-denominated bonds would effectively mean that the US is exposed to the risk of future falls in the value of the USD rather than Japan. That’s a pretty big policy shift for Nippon, which has been a strong buyer of US Treasuries - and, taken with comments coming out of China, hints at a growing unease in Asia over the USD’s supremacy.

But, as the BBC story notes, this is coming from Japan’s opposition party — which isn’t exactly steaming ahead towards victory. Nakagawa’s comments have also been toned down since his interview with the BBC, and there is, as often happens with Japanese politics, undoubtedly a dose of anti-gaijin political rhetoric in the above. BarCap has a good summary:
Masaharu Nakagawa, the “shadow” finance minister of Japan’s largest opposition party, the Democratic Party of Japan, was quoted by BBC on 12 May saying that his party would shun buying US bonds denominated in dollars if his party took the reins of government as a result of Japan’s upcoming lower house election. In an interview with Bloomberg News on 13 May, however, Mr. Nakagawa clarified that it would merely be one option for Japan to propose that the US government issue samurai bonds (US bonds denominated in yen), and that this was strictly his personal proposal and would not necessarily be implemented immediately by the party if it took the helm. The comments, while perhaps reflecting a genuine concern shared by other world leaders, would also serve to boost Mr. Nakagawa’s nationalist credentials ahead of the election and, we believe, should be viewed primarily in that context. Japan’s lower house election must be held by this September, but could be called earlier if the prime minister decides to dissolve the lower house prior to that time.

The samurai will be waiting for a while, it seems.

Related links:
Samurai bond market revives - FT
China to US: We hate you - FT Alphaville
We ‘hate you guys’ even more now… - FT Alphaville

This entry was posted by Tracy Alloway on Wednesday, May 13th, 2009 at 10:12 and is filed under Capital markets, People. Tagged with china, Dollar, japan, Treasuries, yen."

Asian nations will set up a $120 billion foreign-currency reserve pool by year-end

TO BE NOTED: From Bloomberg:

"Asia’s $120 Billion Reserve Fund to Boost Investor Confidence

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By Shamim Adam and Jason Clenfield

May 4 (Bloomberg) -- Asian nations will set up a $120 billion foreign-currency reserve pool by year-end to help revive investor confidence as economies around the region falter amid the worst global recession since World War II.

The Association of Southeast Asian Nations, together with Japan, China and South Korea, will use the funds in times of turmoil. They will set up a surveillance unit that will identify risks to the region and provide oversight of the fund. Japan also offered $60 billion of yen-denominated swap facilities.

“It’s not so much the amounts of money being put in, but the concept of these countries getting together and cooperating,” Mark Mobius, who helps oversee $20 billion in emerging-market assets at Templeton Asset Management Ltd., said in an interview yesterday in Bali, Indonesia. “That’s a very positive development.”

The fund, known as the Chiang Mai Initiative, widens access to foreign-exchange reserves allowing nations such as Indonesia and Thailand, recipients of International Monetary Fund bailouts a decade ago, to defend their currencies. The 13 nations have accumulated more than $3.6 trillion of currency reserves since, with China owning more than half of the assets.

“The idea is for the Asean plus three countries to effectively look after ourselves with our own reserves,” Thai Finance Minister Korn Chatikavanij said yesterday in Bali, where the officials met.

$100 Billion Loans

The IMF arranged more than $100 billion of loans to Thailand, Indonesia and South Korea after their currencies collapsed during the 1997-1998 crisis. In return, governments were forced to cut spending, raise interest rates and sell state-owned companies.

In Thailand, former Prime Minister Thaksin Shinawatra asked his countrymen to fly the national flag on offices, homes and factories after making the last payment in 2003 of the $12.3 billion it drew. Indonesia repaid its debt in 2006, four years before schedule.

Following yesterday’s agreement, Japan will contribute $38.4 billion to the fund, while China and Hong Kong together will add another $38.4 billion to the pool. South Korea’s contribution will be $19.2 billion.

The Southeast Asian nations will contribute 20 percent of the total amount. Thailand, Indonesia, Malaysia and Singapore, the four biggest Southeast Asian economies, will contribute $4.77 billion each, and the Philippines will provide $3.68 billion.

Surveillance System

Under the Chiang Mai Initiative, Asian nations can borrow, without restrictions, 20 percent of an agreed swap amount. They can tap the 80 percent balance only after agreeing to IMF-style restrictions.

That may change as the surveillance system is developed, Korn said. The IMF, Asian Development Bank and the Asean Secretariat will be tapped initially for their expertise in such matters, finance ministers said.

“We feel that we ought to also develop a surveillance system and manage it ourselves as opposed to needing to rely on the surveillance system of institutions outside the region,” Korn said. “The idea is that as we increase our surveillance capacity, the de-linked portion increases.”

Nine of the region’s 10 currencies tracked by Bloomberg fell against the U.S. dollar in the first three months of the year. This quarter, eight have gained against their U.S. counterpart.

‘Real Traction’

“One of the beneficiaries of this crisis, if you want to call it that, has been the way it speeded up the regional market development,” said Gerard Lyons, London-based chief economist at Standard Chartered Bank, said in an interview in Bali. “The Chiang Mai Initiative has now started to get real traction.”

Countries such as Japan and China are doing more to help others navigate through the crisis. China last month announced plans to create a $10 billion investment cooperation fund and offer $15 billion in credit to its Southeast Asian neighbors.

Japan’s Finance Minister Kaoru Yosano yesterday said the country will offer $60 billion of yen-denominated swap facilities to help nations during a financial crisis. Asia’s biggest economy will also guarantee up to 500 billion yen ($5 billion) of yen-denominated bonds, or Samurai bonds, issued in Japanese markets by developing countries, he said.

“The entire world was hit by the crisis and it can only be addressed through international cooperation,” Yosano said. Cooperation is “the resource we achieved in the meeting.”