Diversify reserves with new markets: lawmaker

by Aki Ito and Kyoko Shimodoi

Bloomberg

Japan should hold more of its foreign reserves in emerging market assets to diversify its $1.2 trillion pool, a ruling party lawmaker said.

“We should invest in not just the dollar and the euro, but our trading partners like China, South Korea and Thailand,” Tsutomu Okubo, deputy head of the Democratic Party of Japan’s policy committee, said in an interview in his office Tuesday. “Holding Asian currencies like the yuan, the won and the Thai baht is natural if our trade with Asia is going to grow.”

Japan’s reserves, the world’s second-largest after China, have jumped 14 percent since August 2010 to $1.219 trillion after repeated government-ordered yen sales to stem surges in the currency.

Lawmakers have discussed creating a fund to boost returns on the growing pile of dollars as they look for more revenue to pay back a debt burden twice the size of gross domestic product.

Okubo, a former derivatives trader at Morgan Stanley, said Japan already has a “clever sovereign wealth fund” because it is moving up to $100 billion of its reserves to the Japan Bank for International Cooperation, which in turn is helping companies buy businesses and secure natural resources abroad.

The measures were announced in August as part of a program to help exporters cope with the yen level near a postwar high against the dollar.

“It means Japan is channeling its accumulation of dollars to the places that most need dollar-funding,” said Okubo, 50, a member of the Upper House. “We’re moving closer to a more professional way of managing our dollars.”

That $100 billion in JBIC funding from the nation’s foreign reserves should be expanded, and he is in discussions with Finance Ministry officials to make that happen, Okubo said. Seiji Maehara, the DPJ’s policy-setting chief, asked Prime Minister Yoshihiko Noda’s government on Tuesday to increase the amount by ¥2 trillion to accelerate Japan’s push to maximize the benefits of a strong currency.

The funding could be extended to Japanese commercial banks and companies in an “emergency” such as the credit crunch in 2008, Okubo said.