TOKYO, Oct 29 : Japan can tap more of the huge surplus in its foreign exchange special account to fund spending, private-sector members of a key government panel said on Thursday, arguing it already has sufficient buffers to withstand sharp moves in the yen.
The proposal, made at a meeting of the Council on Economic and Fiscal Policy, comes as policymakers debate ways to secure funding for tax cuts and spending plans without adding to the country’s already huge debt pile.
Japan should “accurately assess and secure” non-tax revenues and money left unused from state funds, the members said in a proposal that lays the groundwork for the government’s budget drafting for the next fiscal year starting on April 1.
The surplus in Japan’s foreign exchange special account, in particular, should be “actively used” as a source of funding for spending, the proposal said.
Japan holds roughly $1.2 trillion in foreign reserves, which include US Treasuries, in a special account that is used to conduct currency intervention.
The surplus in the account has increased due to the yen’s depreciation, which inflates the yen-denominated value of US Treasuries, and interest payments from the foreign assets.
The finance ministry sets guidelines on the ratio of surplus funds that should be retained in the account, to ensure it has enough foreign assets to sell when it needs to conduct interventions aimed at propping up the yen against other currencies.
“Assuming currency rates remain around current levels, Japan has sufficient buffers against exchange-rate risks for the time being,” the members said, adding that Japan can tap more money from the special account without breaching the guidelines.
Japan spent 15 trillion yen ($95 billion) on interventions between July 30 and August 26 to prop up the yen, leading to the biggest-ever drop in its foreign reserves in August.
The possibility of tapping the account has drawn attention as a potential means of funding Prime Minister Sanae Takaichi’s planned two-year cut in the consumption tax rate for food items, which is estimated to cost roughly 5 trillion yen per year.
The administration’s big spending plans triggered a spike in bond yields in July by stoking fears of increased debt issuance that would worsen Japan’s already tattered finances.
Since then, Takaichi has stressed the administration’s resolve to pursue “responsible” fiscal policy and curb debt issuance by tapping non-tax revenues and reviewing existing subsidies and proceeds from special accounts and state funds.
The administration has also vowed to discontinue the practice of compiling an extra budget each year, beyond the annual budget, to fund big stimulus packages.
But in a sign the pledge could be watered down, the private-sector panel members said Japan should not rule out compiling an extra budget when fiscal spending is needed to deal with economic shocks.
($1 = 157.8700 yen)