Japan signs repo pacts with seven Asian nations
Japan signs repo pacts with seven Asian nations
TOKYO (Agencies): Japan banded together with seven Asian
partners yesterday in a drive to provide liquidity and help
stabilize foreign exchange markets in the region.
Japan's monetary authorities said they had signed a set of
bilateral accords called repurchase agreements, or "repo pacts",
with Australia, Hong Kong, Indonesia, Malaysia, the Philippines,
Singapore and Thailand, that went into effect yesterday.
The pacts give participants access to immediate cash -- for
use to defend their currencies against excessive volatility -- by
selling their holdings of U.S. government securities to a pact
partner on a temporary basis with a promise to buy them back
later.
Asian countries began mulling such arrangements after the 1994
Mexican peso crisis raised the specter of similar speculative
attacks on currencies in the fast-growing Asian economies.
The dollar jumped after the announcement, trading at just
above 107 yen in Tokyo mid-afternoon trade after closing at
around 106.56 yen in New York on Wednesday.
But currency dealers said that while the pacts would certainly
provide some support for the dollar in the short term, they were
unlikely to be a long-term factor.
"For now, its greatest value is to emphasize the cooperative
relationship between Asian monetary authorities," one dealer
said, as quoted by Reuters.
A Finance Ministry official told reporters the arrangements
were meant to increase cooperation and were not specifically
aimed at boosting the dollar.
In November, Australia, Hong Kong, Indonesia, Malaysia and
Thailand -- mindful of the potential economic damage that
currency volatility can inflict -- signed similar agreements.
The Philippine central bank then said it would do so with
Indonesia and Singapore, adding to the bilateral accords it
forged last year with Hong Kong, Malaysia and Thailand.
In February, the Finance Ministry unveiled a pact allowing
Japan's central bank to ask its counterparts in Singapore and
Hong Kong to intervene on its behalf in dollar/yen trade in their
markets, a move that some in the ministry were keen to portray as
a step toward closer Asian currency cooperation.
Japan's Finance Ministry said in its statement announcing the
pacts on Thursday that Japan's monetary authorities believed the
latest moves would "further enhance mutual cooperation amongst
Asian monetary authorities".
Japanese officials have said regional currency mechanisms like
the repurchase pacts would be useful supplements to the leading
role played by Washington and Tokyo in stabilizing the key
dollar/yen exchange rate and to that played by the Group of Seven
leading industrialized nations.
Meanwhile, the Hong Kong Monetary Authority (HKMA) yesterday
welcomed the Bank of Japan's entry into a repurchase agreement
with monetary authorities in the Asia-Pacific region.
"This would enhance cooperation between Asian central banks in
their efforts to maintain currency stability. This would also
improve liquidity of foreign exchange reserves of central banks,"
the authority's chief executive, Joseph Yam, was quoted by AFP as
saying in Hong Kong.
The HKMA -- the British colony's de-facto central bank -- has
already signed repo agreements with central banks from Australia,
China, Indonesia, Malaysia, the Philippines and Thailand.
"Entering into these well-secured agreements with central
banks, whose credit standings are generally higher than those of
private-sector banks, would improve the liquidity of the central
banks under minimal risk," a Hong Kong government spokesman said.