Japan says to keep dollar assets while diversifying portfolio
Monday, April 4, 2005 11:17:39 AM
afxpress.com
TOKYO (AFX) - The government will diversify its huge foreign reserves, mostly in dollars, into assets other than US treasury bonds, but will not shift funds into instruments in other currencies, a finance ministry official said
Japan, which holds the world's largest reserves worth 840 bln usd, wants to send a message that it has no plans to sell off dollar assets in a portfolio shuffle, the official added
A steady dollar is crucial for the world's second-largest economy as it is struggling to maintain growth after a mild recession took hold in the second and third quarters of last year due to slowing exports
In a rare guideline on ways to manage reserves, the ministry said in a statement that it "will focus on maintaining security of its assets, while pursuing higher returns"
"We have no plans to change the breakdown of our holdings, which are dominantly in dollars and used as a source for currency intervention," the ministry official said
"The US treasuries are the most liquid market, but, at the same time, we are seeking higher yields within the limit of holding dollar assets," he added
The government will shift some funds into fixed-income assets issued by US government agencies and international organizations, such as the World Bank and the Asian Development Bank, the official said
But the ministry will not invest in US corporate bonds, he added
Prime Minister Junichiro Koizumi's parliamentary testimony last month that it is "necessary to diversify investments" in foreign reserves briefly sent the dollar to a low of 103.70 yen
In February, the dollar came under pressure on reports that Asian central banks were converting their holdings into euro assets, but these were later denied
The dollar has since rallied to above 107 yen, but concerns persist that a sharply weaker dollar could hurt Japanese exports and economic growth by making Japanese goods more expensive overseas and trimming repatriated revenues
The official said the ministry is seeking to maintain a closer dialogue with market participants
"We have built up reserves from intervention in the past, so we have been preparing to issue this sort of statement to clarify our position and stem any speculation," he said
In the year to March 2004, Japan conducted massive dollar buying intervention to prevent the yen from strengthening fast and hurting exports, the main driver for steady economic growth
Tokyo spent more than 35 trln yen in the 15 months from Jan 2003 to soften the yen against the dollar through intervention
Japan has not intervened in the currency market for more than a year
The turnaround in policy came after the dollar rebounded on improving prospects for the US economy and Washington's criticism of Japan's massive intervention
Foreign reserve holdings in East Asia rose substantially in 2004 to around 2.3 trln usd from 1.8 trln, with China and Japan accounting for three quarters of the gain, according to Standard Chartered Bank |
