The Japanese government has entered into a currency swap deal with India to address the shortage of the US dollar in between the growing concerns linked to the sovereign debt crisis in the Eurozone.

Japanese Finance Minister Jun Azumi said in Tokyo that his government is negotiating an agreement with the Indian government. The new deal was announced during the trip to India by Japanese Prime Minister Yoshihiko Noda renewed the bilateral swap agreement with Indian Prime Minister Dr. Manmohan Singh in New Delhi.

According to sources in the Japanese government, the new swap line would be around $10 billion. The Japanese government is looking to increase its cooperation with India, which is the third largest economy in Asia after China and Japan.

The new deal would allow the Indian government to better respond to the financial crisis and the continuing fall of the Indian rupee. The Indian rupee has emerged as the worst performing currency in Asia this year.

Japan and India had signed a $ 3 billion accord in June 2008 that has already run its course. Japan also has currency-swap accords with other Asian countries like China, South Korea Indonesia and the Philippines.

Japan also entered into an agreement with China to promote direct trading of the yen and yuan without relying on the US dollar. It also agreed to purchase Chinese bonds for its foreign-exchange reserves. Japan has the world’s second biggest foreign-exchange reserves and is using them to aid Japanese firms make overseas acquisitions.