Japan and the Philippines have updated a bilateral currency swap agreement to provide liquidity, enabling Manila to exchange the peso for the yen in the event of an emergency, the Japanese Finance Ministry said Friday.
Under the $12 billion arrangement taking effect Friday, the Philippines can swap its own currency for the yen and the U.S. dollar. Japan has access to $500 million.
"It's the first case in which a bilateral swap agreement has been reached to enable yen withdrawals in times of financial crisis," Finance Minister Taro Aso told reporters.
"From a medium-term perspective, we believe it will help reduce excessive dependence on the U.S. dollar," Aso said.
After pumping U.S. dollars into the financial system, the Federal Reserve is seen to be moving toward normalizing its monetary policy by unwinding its balance sheets and raising interest rates as economic recovery gains traction.
The latest arrangement comes as Japan has been seeking to bolster ties with the Association of Southeast Asian Nations, at a time when the world's second-largest economy China is also courting the bloc.
In May, Aso made a proposal to enable ASEAN countries to withdraw yen funds under bilateral currency swap agreements.