Japan targets private sector to help run forex funds

Published: 13 Oct at 10 AM Tags:

According to a report by Reuters, Japan’s government is looking to trust banks and private sector funds to help manage its foreign exchange reserves.

These reserves currently stand at $1.27 trillion. In the past decade the foreign exchange reserve in Japan has doubled because of a massive yen-selling policy introduced to weaken the currency.

The government is likely to propose an amendment to the law later this week so that private financial services can be used to manage foreign exchange assets. At the moment the government can only lend foreign securities to banks.

Although analysts don’t believe the government will outsource its entire foreign exchange reserve, if it did so with just 10 per cent that would represent $120 billion worth of business. It is likely that Japan will continue to invest most of its foreign exchange reserve in high-grade investment bonds and US Treasuries.

Just a small percentage is likely to be handed over to private firms. Although the Japanese government is yet to give a detailed outline of its plans, experts speculate that there will not be a major impact on the foreign exchange market because the government is aware how significantly changing the currency composition will impact the market.