The battered common European currency, the euro, received good news when Japanese Finance MinisterYoshihiko Noda pledged to buy at least 20% of the euro bonds that will be issued this month. These bonds underpin economic rescue efforts by the European Union in Ireland, Greece and possibly in additional economically troubled countries.
After China, Japan has large amounts of foreign exchange reserves estimated at $1 trillion. Therefore Japan has plenty of Euro assets to spare.
The Japanese decision can be interpreted in two ways that are not necessarily mutually exclusive. On the economic front Japan needs Europe as a major export market and therefore it is in Tokyo's interest to help stabilize the European economy. In return the Europeans may prove more accommodating on a free trade agreement with Japan.
Another factor is that Japan has been closely watching Chinese cash diplomacy via which China is buying up European debt and particularly in debt ridden countries such as Portugal and Spain. China is accumulating goodwill and IOUs in the European Union. Japan, which has become increasingly wary of China over territorial disputes and what it perceives as foot dragging in reining in North Korea, has decided that it must emulate China and not leave China alone on the European stage.