Japan may extend purchases of bonds sold by a European financial aid fund in coming months to support the region's recovery from the sovereign debt crisis, two government officials familiar with the matter said.

Finance Minister Yoshihiko Noda said yesterday Japan intends to buy more than a fifth of the bonds to be sold later in January to fund the bailout of Ireland. The government is considering more purchases after that to help boost confidence in the euro area, said the two officials, who spoke on condition of anonymity because the government's plans aren't public.

Japan may be trying to highlight its relevance in international economic affairs after China was ahead in seeking to shore up confidence in the euro. China, whose economy surpassed the size of Japan's in the second and third quarters last year, has received increasing interest from European leaders seeking greater access for their region's companies to the world's fastest growing major economy.

"These purchases give Japan a chance to raise its presence, after it was left behind by China in making investments in Europe," said Koji Ochiai, chief market economist at Mizuho Investors Securities Co. in Tokyo. "This will probably also generate relatively high yields at a time when Japan is working out how to manage its reserves."

Noda said yesterday that Japan will use existing euro assets in its foreign-exchange reserves to buy more than 20 percent of the bonds to be issued later this month by the European Financial Stability Facility. Another Japanese government official said the euro accounts for about a fifth of the country's reserves.

Eoin Treacy's view Chinese and Japanese interest in peripheral Eurozone debt has helped to at least delay Portugal's funding concerns. Portuguese government bond yields retested the November peak last week and eased somewhat today on the successful placement of a circa €600 million new issue. However, a break of the yearlong progression of higher major reaction lows, currently near 5.8%, would be required to question the consistency of the medium-term uptrend.

This article by James Neuger for Bloomberg states that Spain will attempt to place €3 billion and Italy €6 billion in new issues tomorrow. How these sales go is likely to be a more suitable bellwether for the Eurozone's debt markets than today's sales.

Japan's domestic rates have been close to zero for a considerable period, fuelling demand for higher yields elsewhere. This desire for higher returns, in tandem with a weak currency helped to fuel the Yen carry trade prior to the financial crisis. Other currencies are now probably more suited to carry trades due to the more widespread existence of low rates and the comparative weakness of the Euro, Pound and Dollar. However, these currencies are beginning to find support against the Yen making this is an opportune time for the Japanese to purchase foreign assets. This locks in a competitive yield and leaves open the potential to profit from any future Yen weakness.

The firmer tone on the peripheral debt helped to boost investor confidence in some of the more troubled European stock markets at least in the short term. Spain in particular rallied impressively but still needs to sustain a move above 11,000 to break the progression of lower rally highs and suggest a return to medium-term demand dominance. Portugal, Italy, Greece and Ireland also rallied well today.