Japan to Sell Treasuries for Intervention - Nikkei

January 8, 2004

NEW YORK, (Reuters) - Japan plans to sell several trillion yen worth of U.S. Treasuries as early as next week to make cash available for its massive dollar buying intervention, Nikkei's Nihon Keizai Shimbun Friday edition reported.

The reported sale of Treasuries appears to be a stop-gap measure for the Japanese Ministry of Finance to bolster its foreign exchange account until new legislation, due in late January, provides them with more cash for intervention.

The Nikkei report said the government would buy back the bonds later in such a manner that the central bank will not suffer any losses from the arrangement.

Japan has intervened frequently in recent months in an effort to stop the yen from rising against the dollar with the hope of protecting its fragile export sector.

On Dec. 26, the MOF, in an effort to quell speculation it would run out of cash to intervene, said it could now raise funds by selling up to 10 trillion yen (about $94 billion) worth of foreign bonds -- namely U.S. Treasuries -- to the Bank of Japan in the form of repurchase agreements, Reuters reported.
But at the time of that announcement, a MOF official said this deal with the BOJ was just a precautionary measure as the authorities still had ample funds.

Now, according to the Nikkei report, it appears the MOF does not feel comfortable with the cash levels in its foreign exchange account.

The reported move comes just a few weeks after the MOF's announcement that it would raise the legal ceiling for its issuance of short-term bills for its foreign exchange account.

The increase in the MOF's borrowing limit, spelled out in the draft budget for fiscal 2004/2005, would not be formally legislated until late January, and this decision to sell Treasuries to the BOJ is seen as a stop-gap measure.

A market source told Reuters on Wednesday that Japanese authorities spent three trillion yen in the first two days of this week alone in order to keep the greenback from sliding below the 106 yen <JPY=> level. The dollar fell briefly below the 106 yen level on Wednesday.

Nikkei reported that after this yen-selling operation, the the government has spent all but 1 or 2 trillion yen of the 79 trillion yen in funds budgeted for foreign-currency market interventions for fiscal 2003.

http://www.forbes.com/markets/newswire/2004/01/08/rtr1203446.html