Bloomberg News

Japan Needs More China, Korea Assets in Reserves, Lawmaker Says

October 04, 2011

Oct. 5 (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 yesterday in an interview in his office in Tokyo. “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, has 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 state-run 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 of parliament. “We’re moving closer to a more professional way of managing our dollars.”

Talks With Ministry

That $100 billion in JBIC funding from the nation’s foreign reserves should be expanded, and he’s 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’ government yesterday to increase the amount by 2 trillion yen ($26 billion) 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. The finance ministry and the Bank of Japan are laying the groundwork to “swiftly” make that option available in the event the European debt crisis leads to a global liquidity shortage, he said.

After the collapse of Lehman Brothers Holdings Inc. triggered a plunge in Japanese government bonds in September 2008, Okubo helped persuade the ministry to buy floating-rate bonds to stem losses at the country’s banks, he said in an interview in 2009.

--Editors: Ken McCallum, John Brinsley

To contact the reporters on this story: Aki Ito in Tokyo at aito16@bloomberg.net; Kyoko Shimodoi in Tokyo at kshimodoi@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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