Bloomberg News - Japan Pledges Liquidity in Case of Any Global Crisis Eruption

By Toru Fujioka and Masahiro Hidaka - May 11, 2012 8:22 AM GMT+0200

Japan’s central bank pledged to deploy its foreign-exchange assets as part of any international emergency response to the eruption of turmoil in financial markets.

A pedestrian walks past the Bank of Japan headquarters in Tokyo, Japan. Photographer: Tomohiro Ohsumi/Bloomberg

“Time may be necessary before international organizations and other relevant institutions are able to take necessary measures,” the Bank of Japan said in a statement in Tokyo today. The bank “would be prepared to provide foreign currency until international support is provided,” it said.

The bank revised its guidelines for reserve management to take account of “recent changes in international financial and capital market conditions.” In 2008, the BOJ participated in Federal Reserve swap lines designed to address a surge in demand for dollars in the aftermath Lehman Brothers Holdings Inc.’s collapse. Today, investors are monitoring for any signs of a Greek exit from the euro region that would roil markets anew.

“Whatever their intentions, today’s decision is likely to promote a risk-off mode among investors especially when there seems to be no real improvement in Greece,” said Masaaki Kanno, chief Japan economist at JPMorgan Chase & Co. in Tokyo and a former chief foreign-exchange dealer at the BOJ.

Yields on benchmark 30-year German government bonds fell to a record low of 2.201 percent as European trading began today, with investors piling into the securities of Europe’s largest economy as a haven. The MSCI Asia Pacific Index of stock fell 1 percent as of 3:07 p.m. in Tokyo, heading for the biggest weekly decline since November.

Japan held $1.2 trillion of reserves at the end of April, according to data compiled by Bloomberg, second only to China’s $3.3 trillion as of March.

The nation’s central bank said that it’s prepared to provide emergency liquidity to Japanese financial institutions, while saying that they “do not face any problems with their foreign currency funding” at the moment.