Japan advisers urge tapping foreign exchange account surplus to fund spending
EWJ•Private-sector members of a Japanese government panel urged the government to use more of the foreign exchange account surplus to fund spending, saying Japan has sufficient buffers against exchange-rate risks. The proposal comes as policymakers consider funding a planned food tax cut estimated to cost about 5 trillion yen a year.
1. Panel backs using surplus
Private-sector members of Japan’s Council on Economic and Fiscal Policy said the government should actively use more of the foreign exchange special account surplus to fund spending. They said Japan has sufficient buffers against exchange-rate risks for the time being, assuming currency rates remain around current levels, and can tap additional funds without breaching ministry guidelines.
2. Budget pressures remain
Japan holds roughly $1.2 trillion in foreign reserves, including U.S. Treasuries, in the account, which is used for currency intervention. The surplus has grown as yen depreciation raises the yen-denominated value of U.S. Treasuries and through interest payments from foreign assets. The proposal could help fund Prime Minister Sanae Takaichi’s planned two-year cut in the consumption tax rate for food items, estimated to cost roughly 5 trillion yen annually. Panel members also said Japan should not rule out an extra budget to address economic shocks.
