Friday, March 7, 2008

Japanese Foreign Reserves Hit Record High at $1 Trillion

by Michelle Roberts

The foreign reserves of Japan climbed to more than $1 trillion because of the longest rally of its biggest possession of the US Treasury Notes. The Ministry of Finance of Japan declared in Tokyo that the official currency holdings of the country rose to a record high of $1.01 trillion at the end of February this year. The foreign reserves of Japan are the biggest such reserves after China and they grew by five times in the last ten years after the finance ministry of the country purchased US Treasury Notes and other such securities to curb gains in the Yen. Seeing the magnitude of the foreign holdings of Japan the lawmakers of the ruling party of the nation can demand to intensify calls for a sovereign wealth fund so that yields on the state assets can be boosted.

The country is likely to face harder time in instituting a sovereign wealth fund as against its Asian neighbors due to the fact that the foreign reserves were amassed by way of selling trillions of Yens of the government bills instead of cash inflows. An economist with JPMorgan Securities Japan Co. in Tokyo, Masamichi Adachi, was of the opinion that given the huge amount of trillion dollars it is natural for the people to think that the government should invest the huge amount for greater public use. The economist further added that the foreign reserves in regions like China, Singapore or the Middle East are not backed by debt. The foreign reserves of Japan unlike these countries depend on the debts and hence the risks involved in building a sovereign wealth fund for Japan are going to be higher.

Japan’s foreign exchange reserves climbed to a record high in every month of the past eight months. The constant rise in these reserves was triggered by a decline in the housing sector of the US which in turn resulted in the pushing of the US economy to the verge of a downturn and prompted a fast increase in the bonds. As per the indexes from Merrill Lynch and Company the yields from the treasuries were over 10% during the past eight months. The greater value of the euro also stimulated the increase in the foreign reserves. According to the U.S. Treasury Department, Japan was the biggest treasury notes holder when the last year concluded after UK and China.

In the last month the governing party of Japan, the Liberal Democratic Party constituted a group to work on the viability of having a fund to deal with a staggering amount of 4 trillion yen that is $39 billion of interest and profits that came from the foreign reserves. The group also was about to discuss the 150 trillion Yen in the form of reserves and pension. The Japanese Finance Ministry is against investing the funds in the potentially risky investments. A member of the LDP panel, Kotaro Tamura, expressed that Japan should take stock of the volume of foreign reserves that the country should ideally hold.

 

 

 

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