The government yesterday approved a proposed $3-billion currency swap agreement with Japan to help each other face a financial crisis if their currencies were to come under the attack by speculators similar to the one that hit the Asean countries in the '90s.

Despite $300 billion dollars in forex reserves the government has opted for an additional cushion to face a financial crisis government has signed the deal.

During the visit of then Japanese Prime Minister Shinzo Abe to New Delhi in August 2007, India and Japan had agreed to sign a bilateral agreement on currency swap, which would add to a regional network of such accords designed to provide emergency financial liquidity to either or both parties in times of currency market or other turbulence.

The Reserve Bank will now sign a currency swap agreement with Bank of Japan to exchange $3 billion against rupee or yen for mitigating short-term balance of payment problem. The deal will safeguard the economy from any future balance of payment of crisis.

"It is an additional arrangement outside IMF to meet for short term liquidity in US dollars during a balance of payment crisis," an official spokesperson told reporters after the cabinet meeting.

Japan has swap deals with other Asian countries like Thailand, Korea, China, Malaysia, Philippines, Singapore and Indonesia. In some cases, the swap is one way, while in some others it is two-way.