Japan's advisers urge using FX account surplus to fund government spending

what happened

Private-sector members of Japan's Council on Economic and Fiscal Policy, as Reuters reports, urged the government to draw more on the large surplus in its foreign exchange special account to fund spending. They argued the country already has enough buffers to withstand sharp swings in the yen.

The proposal was presented at a council meeting on Thursday and lays the groundwork for next fiscal year's budget, which begins on April 1. The members also said non-tax revenue and unused state fund money should be more precisely assessed and secured. In their view, the account surplus should be actively used as a funding source.

why it matters

The account holds reserves used for currency intervention, and its surplus has grown because of the yen's weakness and interest income on foreign assets, including US Treasuries. The topic matters amid Prime Minister Sanae Takaichi's plan to cut the food consumption tax and ongoing worries about heavy debt. Japanese government bond investors will watch how spending is funded without more debt issuance.

market impact

Yen and JGBs: a larger intervention buffer and less need for new debt matter for the currency and bonds

tags

instruments