Japan, Real Euro Saviour and Big EFSF Customer

This is a short take on a news item I found interesting. With its massive $3 trillion and "change," China has often been touted as the saviour of various ailing peripheral EU economies [1, 2]. While European leaders--Nicolas Sarkozy in particular--have solicited China's help in these fundraising efforts, PRC help has not been forthcoming. China, for one, would like a lot of concessions granted first such as the EU lifting its designation of the PRC as a "non-market economy" before 2016 or the 15th anniversary of its WTO accession. (I explain why in a November 2011 post.)

So, it may surprise some of you that the big customer for European Financial Stability Facility (EFSF) bonds from the Asia-Pacific has been Japan, not China. In the auctions to date including the most recent, apparently oversubscribed one, it has been the Japanese who've upped their holdings of euro-denominated papers:

Japan has bought 300 million euros ($383 million) worth of bonds sold by the euro zone's rescue fund, the European Financial Stability Facility (EFSF), in an auction on Thursday, a finance ministry official told Reuters on Friday. The amount accounts for 10 percent of an oversubscribed 3 billion euros worth of bonds sold by EFSF on Thursday to raise funds for Ireland and Portugal. The bond was the first with a three-year maturity for the triple A-rated EFSF, which is seeking to offer a greater range of maturities. It attracted orders close to 4.5 billion euros [for a bid-to-cover ratio of around 1.5].

Japan has so far bought 3.535 billion euros worth of EFSF bonds of a total 21 billion worth of such bonds sold by the Luxembourg-based fund, set up in 2010, in all the six auctions since last year. A senior Japanese government official said on Thursday that Japan will continue to buy bonds issued by the EFSF by making use of highly liquid euro assets in its foreign reserves in accordance with Europe's certain efforts to resolve the region's debt crisis.

The rescue fund is hoping that strong demand will quieten concerns that the EFSF could struggle to raise funds as the debt crisis threatens the credit ratings of its main guarantors, particularly France.

So there you go as far as Asian vote of confidence in the euro is concerned--albeit from a country you may not necessarily have suspected to be buying in large quantities. In a small way, it also buoys the EUR/JPY rate to Japan's benefit.