BOJ to restart dollar swap with Fed as central banks seek liquidity

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TOKYO, May 10 Kyodo -
The Bank of Japan said Monday it will restart a dollar-swap arrangement with
the U.S. Federal Reserve as major central banks launch fresh coordinated action
to ease strains in global financial markets resulting from the sovereign debt
crisis in Greece.
The Group of Seven advanced economies hailed in a joint statement emergency
measures agreed by the European Union to restore stability in the eurozone,
underscoring ''the need for exceptional action'' to prevent shockwaves from
Greece spreading to the wider economy.
''We handled the financial turmoil in a solid manner,'' Japanese Finance
Minister Naoto Kan told reporters after the G-7 issued the statement. With the
promptly arranged rescue measures, he said, ''stock and currency markets are
likely to restore their stability.''
Tokyo will extend 360 million euros (around $465 million) in loans to Greece
through the International Monetary Fund, which is set to provide financial
support of 5.5 billion euros as part of the rescue package for the country, a
Japanese official said.
The Japan-U.S. currency swap, through which the Fed will provide unlimited
funds to the BOJ, will be effective through January, the Japanese central bank
said after an emergency policy meeting.
The Fed is reaching similar bilateral accords with the Bank of Canada, the Bank
of England, the European Central Bank and the Swiss National Bank.
The central banks receiving dollar funds will inject the money into domestic
markets for short-term funding, such as overnight money lent between banks and
other financial institutions.
The move, similar to action implemented after the global financial meltdown
following the bankruptcy of U.S. investment bank Lehman Brothers Holdings Inc.
in September 2008, reflects fears of disruption in money markets, with demand
for the dollar rising as investors increasingly move out of the euro.
Speaking at a press conference, BOJ Deputy Governor Hirohide Yamaguchi said the
bank needs to do more work before the swap line with the Fed restarts possibly
later this week.
''Each country took actions in a cooperative way and...we see them as being
appreciated to a certain extent'' by market participants, said Yamaguchi, who
chaired the meeting on behalf of Governor Masaaki Shirakawa, who was attending
Bank for International Settlements-related talks in Switzerland.
Equities rebounded in the Tokyo stock market on Monday while the euro regained
some lost ground against other major currencies.
The BOJ has separately injected yen liquidity into the Tokyo money market as
demand has pushed short-term dollar interest rates higher, leading investors to
turn to yen liquidity for lower funding costs.
At the extraordinary meeting, the BOJ Policy Board also left its benchmark
interest rate unchanged at a razor-thin 0.1 percent.
The G-7 finance ministers and central bank governors had discussed the impact
of the problems in Greece and measures to counter the fallout on global
financial markets off and on in conference calls since Friday.
''We welcome the actions by euro area member states to put public finances on a
sustainable path...and some other European Union states to respond to members'
needs through financial support and a new European Stabilization Mechanism,''
the G-7 finance ministers and central bank chiefs said in the joint statement.
At a meeting in Brussels on Sunday, EU finance ministers approved rescue
measures to address the sovereign debt crisis in Greece and ease fears of
contagion to other eurozone members, such as Spain and Portugal. The measures
include emergency loans and a new government-backed loan guarantee mechanism.
''Recognizing the need for exceptional action,'' the G-7 also said that ''these
measures will make a strong contribution to financial stability, and we will
continue to work together to support stability, recovery, and growth.''
It was the first time in seven months for the G-7 -- Britain, Canada, France,
Germany, Italy, Japan and the United States -- to issue a joint statement.
The group did not release any statements after regular meetings in February and
last month, with the Group of 20, whose members include major developing
economies like China and India in addition to advanced members, having emerged
as the premier forum for international economic cooperation.
The G-20 separately issued a joint statement Monday that welcomed the
commitment by European nations to restore stability in the eurozone and pledged
to ''continue to work together to maintain global financial stability and
ensure strong, sustainable and balanced global growth.''
==Kyodo
2010-05-10 23:55:00