Japan agreed to make $15 billion available to India in a currency swap arrangement as Europe’s deepening debt crisis threatens to curtail developing Asia’s access to dollar funding.

Japanese Prime Minister Yoshihiko Noda renewed a bilateral swap agreement with Indian Prime Minister Manmohan Singh in New Delhi Wednesday. The two nations had signed a $3 billion accord in June 2008 that has since expired.

The agreement may help India battle this year’s more- than 16 percent decline in the rupee as Europe’s sovereign-debt turmoil prompts investors to reduce Asian investments on concern global growth will slow.

Japan gains another avenue of using its $1.2 trillion of currency reserves as it seeks to bolster its presence in international finance and foster a closer trade relationship with Asia’s third-largest economy. 

“Japan is helping India to provide stability to the rupee,” said K. V. Kesavan, who specializes in Japanese studies at New Delhi-based think tank Observer Research Foundation. “It is an attempt to increase their influence in Asia which has been down for the past many years.”

With a current-account deficit, slowing domestic growth and increased international financial stress stemming from Europe, investors have driven the rupee down, forcing the central bank to tap its reserves in defense. India’s holdings slid $14 billion in the four weeks to Nov. 25.

Japan has pursued currency-swap accords with other nations, including one with South Korea that it expanded to $70 billion in October to stabilize Asia’s financial market. Japan also has bilateral swap deals with Indonesia, the Philippines and China.

This month, Noda also oversaw a deal with China to expand use of the yuan and yen in bilateral trade and purchase Chinese bonds.

At home, in an effort to take advantage of the yen hovering near a record-high against the dollar, officials have prepared 10 trillion yen ($129 billion) in a fund for companies to pursue more overseas acquisitions.

Japanese efforts to support regional neighbors are long- standing. In October 1998, Japan unveiled $30 billion in aid under the so-called Miyazawa Initiative, named after Finance Minister Kiichi Miyazawa, designed to help countries obtain funds at a time when emerging-market bond issuance had largely dried up amid the 1997-98 financial crisis.

Reserves in Japan swelled to $1.22 trillion in November from $1.04 trillion at the end of last year, propelled in part by a resumption of currency intervention under Noda, starting with one round in September 2010 when he was finance minister. With Noda as prime minister, yen sales continued with at least three episodes this year. 

(Bloomberg)