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.