Japan and India are likely to agree on upgrading their currency swap arrangement in an effort to ease tension in India over the rapid withdrawal of funds by overseas investors amid global economic uncertainty, a senior Japanese official said.
The previous accord between the two Asian powerhouses, signed in 2008 to provide up to $3 billion to each other when necessary in exchange for their respective currencies, has expired.
Officials from the countries were finalizing a new agreement that would make more funds available in dollars before Prime Minister Yoshihiko Noda holds talks with his counterpart, Manmohan Singh, in New Delhi on Wednesday, the official said.
Investors have increasingly been pulling their money out of emerging economies as the outlook has soured amid the eurozone sovereign debt crisis. South Korea recently reached a similar agreement with Japan.
The rupee has lost ground against the dollar as the withdrawal of investment funds has accelerated amid widespread risk aversion. By enhancing such cooperation with India, Japan believes it would help to establish a "safety net" in Asia, the official said.
