Japan and India struck a $15 billion currency swap deal Wednesday that could support the sagging rupee as Japanese premier Yoshihiko Noda made a lightning trip to New Delhi to push closer ties.
The deal was part of a slew of agreements clinched by India and Japan, which is seeking to forge stronger alliances in the Asian region as a counterweight to China's growing might.
"I am convinced we need to strengthen the economic partnership," said Noda, whose country sees India an attractive market with its increasingly affluent middle class, especially with the European and US economies slowing.
"Japan has technology and capital while India has a young workforce as well as abundant demand for infrastructure," he said, calling the "complementarity" between the second- and third-largest Asian economies "unmatched".
Coming on the heels of a trip to China where the main focus was on political diplomacy, heightened by the aftermath of the death of North Korean leader Kim Jong-Il, Noda's visit to India stressed economic relations.
The currency swap, under which Japan could lend India dollars to defend the ailing rupee, is an expansion of a $3 billion accord that expired earlier this year.
"Japan and India will expand their currency swap from a current $3 billion to $15 billion," Noda told a news conference in the Indian capital late Wednesday at the close of his 36-hour trip.
Japan, which has $1.2 trillion in foreign currency reserves, has been moving to enhance its global financial role, and struck a similar swap accord with South Korea in October.
The currency agreement is an extra weapon for India, which has $300 billion in reserves, to use in propping up the rupee.
The rupee has slid 15 percent this year against the dollar as overseas investors have withdrawn funds as they hunt for safe havens in the midst of global financial turmoil.
Prime Minister Manmohan Singh said he was "extremely happy" with the outcome of his talks with Noda.
The two leaders said a landmark free-trade pact signed in February under which the high-tech nation and the South Asian giant will scrap tariffs on 94 percent of goods within a decade had huge potential for boosting commerce.
The countries' two-way trade stands at around $14 billion and is targeted to rise to $25 billion by 2014 -- but that sum is still a fraction of Japan's $340-billion trade with China.
Noda also announced a $4.5-billion investment in an ambitious $100-billion infrastructure plan to create a manufacturing and freight corridor from New Delhi to financial hub Mumbai as well as $1.7 billion in loans for rapid transit and conservation projects.
The two countries also said nuclear negotiations that stalled after the Fukushima nuclear disaster in March 2011 were headed in the "right direction."
Japan and India launched talks in June 2010 on a nuclear cooperation pact that would allow Tokyo to export its cutting-edge technology to the energy-hungry South Asian nation, a hotly contested market for atomic plants.
Japan is worried that nuclear-armed India has not signed the Nuclear Non-Proliferation Treaty. But Japanese government spokesman Nori Shikata told reporters that "as a matter of basic policy we're interested in promoting use of Japanese civilian nuclear technology in India".
Prime Minister Noda said use of civilian nuclear technology could help India lower carbon emissions blamed for global warming but added he could not say when the talks might produce an agreement.
Ties between the countries have warmed only in recent years. Tokyo was traditionally a big lender to India but not a significant business partner and it was a strong critic of New Delhi’s unexpected 1998 nuclear weapons test.