Japan spending US$100b to counter strong yen

Japan's government on Wednesday unveiled a US$100 billion loans programme to ease the strains of a strong yen and encourage companies to turn adversity into opportunity.

The unconventional one-year scheme aims to prompt Japanese companies to shift their yen holdings into foreign currencies and spur overseas mergers and acquisitions.

It came coupled with a new rule requiring major financial firms to report their currency trading positions through the end of September.

The emergency steps represent the latest attempt by the government to wrestle with a Japanese currency that it fears is undermining the country's export-driven economy and recovery from the March 11 earthquake and tsunami.

"I hope this will help to address the one-sided strength of the yen," Finance Minister Yoshihiko Noda told reporters, according to Kyodo News agency.

A strong yen erodes the value of exporters' profits when brought back to Japan and pushes up prices of their goods overseas.

Officials also worry about job losses at home as companies move production out of Japan to insulate themselves from the rising yen.

The finance ministry intervened in currency markets earlier this month as the yen flirted with record highs against the dollar.

The impact proved to be short-lived. Last week, the dollar fell under 76 yen, which was a new post-World War II high for the Japanese currency.

Through the programme, the government will send foreign currency reserves to the Japan Bank for International Cooperation. The state-operated bank, known as JBIC, would then extend loans to commercial banks so they can help companies with overseas investments and secure natural resources.

While a strong yen saps overseas earnings, it also makes potential acquisitions outside of Japan less expensive.

Japanese companies have embar-ked on an aggressive global shopping spree as a result. Recent data from Dealogic shows that the value of overseas takeovers and acquisitions by Japanese firms in 2011 has more than doubled from a year earlier.

Asahi Group Holdings Limited last week agreed to buy New Zealand beverage maker Independent Liquor Limited in a deal worth US$1.2 billion. Just weeks earlier, rival Kirin Holdings Company said it would buy Brazilian brewer Schincariol Group for US$2.5 billion in one of the largest overseas takeover bids by a Japanese company this year.

JBIC will separately funnel ¥150 billion (US$1.96 billion) of its own money to the programme.

The second prong of the government's efforts is an attempt to limit speculation that officials suspect might be fuelling sharp swings in the yen. Finance Minister Yoshihiko Noda has said repeatedly in recent weeks that the yen's moves are unbalanced and suggested that the government would act against speculators seeking short-term profits.

The central bank released a brief statement in support of the finance ministry's measures, saying they will "contribute to the stability of the foreign exchange market".