Japan advisers urge tapping foreign exchange account surplus to fund spending
SPY•Private-sector members of a Japanese government panel urged the government to use more of the foreign exchange account surplus to fund spending, saying reserves provide sufficient buffers against exchange-rate risks. The proposal comes as Japan considers a food consumption tax cut estimated to cost 5 trillion yen annually.
1. Surplus for spending
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. Their proposal lays groundwork for drafting next fiscal year’s budget, which begins April 1.
2. Reserve buffers
Japan holds roughly $1.2 trillion in foreign reserves, including U.S. Treasuries. The account’s surplus has grown as yen depreciation raised the yen-denominated value of those assets and through interest payments. The members said Japan has sufficient buffers against exchange-rate risks at current levels and can tap more funds without breaching ministry guidelines.
3. Budget pressures
The proposal has drawn attention as a possible funding source for Prime Minister Sanae Takaichi’s planned two-year cut in the consumption tax on food, estimated to cost roughly 5 trillion yen per year. The panel members also said Japan should not rule out an extra budget to address economic shocks, despite the administration’s pledge to discontinue annual extra budgets.
