Japan to buy European bonds to support eurozone

"It is appropriate for Japan, a major country, to make a contribution, also in order to increase the bonds' credibility," Finance Minister Yoshihiko Noda told a news conference, Jiji Press reported.

Noda added that Japan would be looking to buy more than 20 per cent of the total offer of a planned issuance later this month, according to the Nikkei business daily.

"I assume roughly more than 20 per cent," Noda said, adding that the government would use euros held in its foreign reserves to make the purchases.

The 440-billion-euro EFSF plans to begin issuing this month bonds guaranteed by solvent eurozone members to raise bailout funds for Ireland.

The euro soared before quickly paring gains following Noda's comments. The unit bought $1.2990 but fell back to $1.2944 in Tokyo trade. The unit had in the past few days plunged to $1.2830, its weakest level since mid-September.

Market players "went for euro buying out of surprise" over the Noda comments, said Credit Agricole forex director Yuji Saito.

But the rally was short-lived with investors realising Japan would use euros in its foreign reserves to buy the bonds, indicating there will not be large fresh buying of the single currency, Saito said.

The 440-billion-euro EFSF, set up last year to preserve financial stability in the eurozone in the wake of the Greece crisis, plans to issue this month bonds guaranteed by solvent eurozone members to raise bailout funds for Ireland.

Last week the European Union issued the first round of bonds for Dublin as part of the 67.5 billion euros of aid it was promised last year under its EU-International Monetary Fund bailout.

Bond markets have been tense as rates on debt issued by countries seen to be most at risk in the eurozone -- led by Portugal -- jumped sharply on Monday ahead of several critical bond sales this week.

Investors are concerned that when Spain and Portugal issue more debt this week they will have to offer exceptionally high interest rates to attract lenders.

The Portuguese bond auction is the focus of market attention this week after officials from other eurozone governments expressed concern that Lisbon might soon be forced to follow Greece and Ireland in asking for a bailout.