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TOKYO (MNI) – Japanese Finance Minister Yoshihiko Noda on Wednesday
said the government will set up an emergency $100 billion facility in a
fresh attempt to protect the export-led modest economic recovery from
the threat of a continued rise in the yen’s value.

Noda bypassed the hung parliament, where legislation of additional
fiscal programs would take weeks. Instead, the government is tapping
into its huge dollar reserves managed separately from the general
national budget account.

Japan’s key lending agency will use the foreign reserves and make
yen loans to, or invest in, Japanese firms with needs to purchase
overseas assets. Those firms will then have to turn yen funds into
dollars or other currencies, which would add selling pressure on the
Japanese currency in the forex market.

“Lopsided movements in foreign exchange rates continue, so we had
to act quickly. We have decided to set up a one-year temporary facility
in order to prompt companies to transfer yen funds into foreign
currencies,” Noda told a news conference.

“We don’t need to change domestic laws in raising new funds,” he
said.

Noda said that the government will take dollar funds from its
foreign exchange special account and lend them to the Japan Bank for
International Cooperation.

The JBIC will then extend loans to banks, which will then lend
companies that need funds for mergers and acquisitions, for example. The
former export-import bank will also invest in projects.

The facility can also help promote the creation of a new industry,
secure energy supply sources overseas and support small businesses, as
the appreciation of the yen threatens to erode exporter profits while
boosting the yen’s purchasing power in international markets.

“I hope today’s measure will help stabilize foreign exchange
rates,” Noda said.

The minister also said that the MOF will request forex traders to
report the balance of their own foreign exchange positions through the
end of September.

Noda also said that the government will use its fiscal 2011 budget
reserves set aside for emergencies, in order to fund government programs
to head off the drag from the yen’s rise.

The Bank of Japan issued a brief statement on Wednesday, saying it
“expects that the measures announced by the Finance Minister today will
contribute to the stability of the foreign exchange market.”

“The Bank of Japan will continue to carefully monitor the effects
of developments in the foreign exchange market on the future course of
economic activity and prices.”

The dollar is relatively stable in a Y76.60 to Y76.80 range today,
partly due to jitters Japanese authorities may intervene in the forex
market, after the Japanese currency hit a new high of Y75.95 against the
dollar on Friday.

Japan last intervened to sell yen for the dollar on Aug. 4,
followed by additional credit easing measures by the BOJ on the same
day.

Noda repeated his recent remarks that the MOF will keep in close
contact with the BOJ on currency market developments.

The government will extend dollar-fund loans worth up to $100
billion (about Y7.7 trillion at the current exchange rate) to the JBIC
at a rate of the six-month LIBOR (London Interbank Offered Rate).
Separately, the JBIC will invest Y150 billion in the facility.

As for encouraging M&A in the global market, the JBIC will lend
money to banks by providing credit lines. This will make it easier for
banks to extend loans to Japanese firms that are seeking investment
opportunities overseas.

In supporting exports by small businesses, the JBIC will extend
loans to firms or invest in funds to be established for promoting
shipments of Japanese products that are becoming more expensive
overseas as the yen rises.

Asked about the announcement by Moody’s to cut Japan’s debt rating,
Noda replied, “I wouldn’t comment on decisions by private-sector firms.”

But he added, “Investor confidence in Japanese debt hasn’t been
undermined. Japanese government bonds continue to be smoothly absorbed
by markets.”

Moody’s Investors Service earlier in the day said it has lowered
its rating on Japanese government debt to Aa3 from Aa2, but the outlook
is now stable.

The downgrade is due to “large budget deficits and the build-up in
Japanese government debt since the 2009 global recession,” said the U.S.
ratings agency.

tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4833 **

[TOPICS: M$A$$$,M$J$$$,MMJBJ$,MGJ$$$,MT$$$$]