Japan: PM Adviser Suggests Diversifying Foreign Reserves

Bloomberg reports Takatoshi Ito, an adviser to Prime Minister Shinzo Abe, said the country should invest $700 billion of its more than $900b of foreign currency reserves in higher-yielding assets. Japan is the largest holder of U.S. Treasuries, with $615b, followed by China with $414b, as of April. Within Asia, South Korea, China and Taiwan have already announced plans to diversify reserves. As a result, the U.S. dollar has lost more than 7% against the euro in the past year. Vice finance minister Hiroki Tsuda said he's "aware of the ongoing debate" and acknowledged the government is studying other nations' investment models, but he said there are no immediate plans to change any holdings. Ito proposed investing around $200b of reserves in corporate debt or mortgage-backed securities, $200b in stocks and the remaining approximately $300b in other assets. He said $200b should be kept invested in highly-liquid assets such as Treasuries, for possible use in national emergencies.

Sources: Bloomberg
Commentary: Big Mac Index Supports Japanese Bullishness • BoJ's Nishimura Warns Against Pausing for Too Long • US Subprime Concerns Help Stir Yen Rally
Stocks/ETFs to watch: iShares MSCI Japan Index (EWJ). Bond funds: iShares Lehman 1-3 YR Treasury Bond (SHY), iShares Lehman 7-10 YR Treasury Bond (IEF), iShares Lehman 20+ YR Treasury Bond (TLT). Currency funds: PowerShares DB G10 Currency Harvest Fund (DBV), Euro Currency Trust (FXE), CurrencyShares Japanese Yen Trust (FXY)

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Comments

[VladimirSenkov]

Interesting stuff.

I'm not 100% sure if Japan is holding short term paper they are rolling, like the Chinese, but I assume so.
If that's the case, they don't need to do anything to get higher yield, it will just happen automatically.
let's see . . . first 200B:
Corporate paper might not be the place to go with M&A activity the way it is now and rates going higher in the future.
I'll leave the mortgage-backed securities part to the imagination :)

200B in stocks, ok. i guess the market will continue to rally when both Chinese and now Japanese pour the cash . . .
Any ideas about 300B in "other". I'd like to know what that is, sounds interesting.

ok, let's hope they make good money on those investments. with some luck (no luck really, all they need to do to keep this thing afloat is to keep the yield on the yen low) we will all make money forever. i mean, until the carry trade starts to unwind. then it's rush to the exits for everybody. i guess if they are seriously planning to diversify into higher yield this "worst case scenario" is not going to happen soon. after all why would one go into stocks for less than say 10 years?