960425

Japan sign repo

pacts with Asian nations

TOKYO: Japan banded together with seven Asian partners on Thursday in a drive to provide liquidity and help stabilise 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 on Thursday.

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 spectre 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.

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 stabilising the key dollar/yen exchange rate and to that played by the Group of Seven leading industrialised nations.-Reuter