> Will Japan Dump Dollars? & Banks Facing $52 Bn Loss on
>
> Via NY Transfer News Collective * All the News that Doesn't Fit
>
> Bloomberg via GATA - July 11, 2007http://www.bloomberg.com/apps/news?pid=20601087&sid=at1OmRjIJsKU&refe...
>
> Now Japan is talking about diversifying out of dollar
>
> Japan Should Diversify Reserves, Prime Minister's Adviser Says
>
> By Shigeki Nozawa
> Bloomberg News Service
>
> TOKYO -- Japan, the largest overseas holder of U.S. Treasuries,
> should invest $700 billion of its currency reserves in higher-yielding
> assets such as stocks and corporate bonds, said Takatoshi Ito, an
> adviser to the prime minister.
>
> The reserves should be managed by a special fund that will gradually
> diversify into euros, Australian dollars, and emerging-market
> currencies, Ito said in an interview in Tokyo.
>
> Central banks in South Korea, China, and Taiwan have announced plans
> to buy assets with higher returns than U.S. debt, contributing to
> a 7.2 percent drop in the dollar against the euro in the past year.
> The establishment of sovereign wealth funds, pioneered by Singapore
> in 1981, may also reduce demand for Treasuries, pushing up U.S.
> borrowing costs.
>
> "Japan should make more use of its reserves, following Singapore's
> example," said Yuji Kameoka, senior economist and currency analyst
> at Daiwa Institute of Research in Tokyo. "To manage these funds
> safely, a more appropriate amount is $300 billion."
>
> The dollar reached a record low of $1.3784 per euro yesterday, and
> was little changed at $1.3744 at 10:21 a.m. in Tokyo, on speculation
> loan defaults among home owners with poor credit histories will
> weigh on the U.S. economy. The yen traded at 121.73 per dollar,
> after reaching a one-month high of 120.99.
>
> .A carry trade
>
> Ito said that the Ministry of Finance, which expanded its currency
> reserves by selling yen in 2003 and 2004, has essentially borrowed
> the funds from the Japanese people.
>
> "Foreign currency reserves are assets that belong to our citizens,"
> Ito said in an interview July 6. "The government has borrowed the
> money from the people and it is engaged in a kind of carry trade.
> So it has to show some higher return on the investment."
>
> Ito, a member of Prime Minister Shinzo Abe's economic advisory
> panel, may need to overcome opposition from the finance ministry.
> Carry trades involve borrowing yen to invest in higher-yielding
> assets overseas.
>
> "I'm aware of the ongoing debate," Hiroki Tsuda, the top- ranked
> vice finance minister, said in an interview this week. The government
> is studying how other nations manage their reserves, though it has
> no immediate plans to make any changes to it own holdings, he said.
>
> .Selling treasuries
>
> Japan's $913.6 billion of reserve holdings are the world's second
> largest after those of China, which is setting up a fund to manage
> part of its more than $1.2 trillion of reserves. China's planned
> state investment fund has already agreed to take a stake in U.S.
> private-equity fund Blackstone Group LP.
>
> The Government of Singapore Investment Corp. invests more than $100
> billion of the city-state's reserves in stocks, bonds, real estate,
> and commodities. Singapore held $144 billion in reserves at the end
> of June, up 12 percent from a year earlier.
>
> Japanese investors sold $84.6 billion of Treasuries since August
> 2004, cutting their holdings to $614.8 billion, according to the
> Treasury Department. Taiwanese investors sold $6.2 billion in that
> period, reducing their holdings to $59.3 billion.
>
> About $200 billion of the reserves should be invested in corporate
> debt or mortgage-backed securities, $200 billion in stocks and the
> rest in other assets, said Ito. Japan needs about $200 billion
> dollars as its official reserves, held in highly-liquid assets such
> as Treasuries, to step into the market in case its currency plummets,
> Ito said.
>
> "Japan should have certain levels of reserves so it can fend off
> unusual speculative moves," he said. The new fund would not be
> counted as foreign exchange reserves in statistical data but would
> be used for national emergencies, Ito said.
>
> According to the International Monetary Fund, the U.S. dollar
> accounted for 64.2 percent of the world's foreign reserves at the
> end of March 2007, an eight-year low. The proportion of the euro
> rose to 26.1 percent, the highest since the currency was introduced
> in 1999.
>
> .Global trend
>
> On July 3 Financial Services Minister Yuji Yamamoto told reporters
> in Singapore that Japan should invest pension and foreign reserves
> in riskier assets such as stocks, the Nikkei newspaper reported.
> Finance Minister Koji Omi said on June 29 that reserves are not
> funds to be invested in a risky manner.
>
> Economic and Fiscal Policy Minister Hiroko Ota, who heads the key
> economic panel, said on July 6 that "nothing has been decided about
> what the panel will discuss." She said the panel's special task
> force will continue to debate public fund investment.
>
> While Japan hasn't intervened in the foreign exchange market since
> March 2004, its foreign reserves have been increasing due to growing
> interest income. Japan sold a record 20.4 trillion yen ($165 billion)
> in 2003 and 14.8 trillion yen in the first quarter of 2004.