Trust in EFSF Bonds Not Shaken: Japan Finance Minister

Japan's confidence in bonds issued by the euro zone's rescue fund has not been shaken by Standard & Poor's downgrade of the fund's credit rating, Finance Minister Jun Azumi said on Tuesday.

AP

The U.S. agency cut its top AAA rating of the European Financial Stability Facility by one notch to AA+ on Monday, three days after it cut the ratings of France and Austria by the same margin and downgraded seven other euro zone nations.

Azumi told reporters the fund's bonds remained "attractive" investment for Japan but that the weakening euro warranted a close watch because it hurt Japanese exporters.

"Japan has bought them by certain amounts and our stance will not immediately change just because of the downgrade," Azumi told reporters after a cabinet meeting.

Policymakers in Tokyo fear that Europe's failure to contain the euro area' sovereign debt crisis may derail Japan's recovery from the March 11 earthquake, tsunami and nuclear crisis by depressing demand for Japanese goods and boosting the appeal of the yen as a safe haven investment.

With the euro hovering barely above a 17-month trough against the dollar

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[EUR=  Loading...      ()   ] and an 11-year low against the yen

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[JPYEUR=  Loading...      ()   ] the post-disaster rebuilding effort is the main source of optimism for the world's third-largest economy.

Bank of Japan Governor Masaaki Shirakawa, who discussed Europe's crisis and world economy with with Prime Minister Yoshihiko Noda on Tuesday was quoted as saying that the economy remained resilient to global headwinds due in part to post-quake reconstruction demand.

Japan bought dollars three times last year when the yen scaled record highs against the U.S. currency, but has not bought any euros since May 2003.

Asked about the need to intervene in response to a weak euro, Azumi said he wanted to carefully examine current movements in currency rates.

He also urged Europe to strengthen its defenses, creating a financial "firewall" around euro zone's indebted nations to prevent the crisis from spreading and further battering the single currency. He also urged France and Germany to lead such efforts.

But both Berlin and Paris said there was no need to shore up the EFSF rescue fund after the credit downgrade.

Japan has so far bought 3.535 billion euros ($4.48 billion) worth of EFSF bonds of a total 21 billion euros worth of such bonds sold by the Luxembourg-based fund, set up in May 2010.

Japanese officials have said they would continue to buy EFSF bonds by tapping euro assets in its foreign reserves providing that Europe makes efforts to resolve the region's debt crisis.

On Monday, BOJ Governor Shirakawa singled out a possible fallout from Europe's debt crisis as the biggest risk facing the economy, although he gave assurances that Japanese banks are having no trouble raising funds.