Japan Kan: No plan to tap fx reserves for spending

TOKYO, March 16 (Reuters) - Japan's finance minister said on
Tuesday he had not instructed his staff to tap cash reserves in a
special foreign exchange account to help fund the ruling party's
spending plans, denying a media report that he had done so.

With tax receipts sliding in the wake of the financial
crisis, Tokyo is expected to use up trillions of yen in non-tax
revenue held in such accounts to keep its massive debt under
control.

The Nikkei business daily reported that Naoto Kan had
instructed the finance ministry to mull drawing down a portion of
reserves worth nearly 20 trillion yen ($221 billion) in the forex
special account to finance the Democratic Party's spending plans.

"I have never given such specific instructions to tap foreign
exchange reserves as a source of funding," Kan, who is also
deputy prime minister, told reporters after a cabinet meeting.

The government aims to overhaul the special accounts as part
of efforts to restore its tattered finances. Japan's public debt
is running at nearly twice the size of GDP, the highest ratio
among its peers in the developed world.
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Any review of the forex special account could lead to a
drastic overhaul of its management, as some lawmakers want to get
returns on investment by managing the interest income from the
forex reserves separately from the account.

Currently the finance ministry manages Japan's $1 trillion in
forex reserves -- the bulk of which are held in U.S. Treasuries
-- through the account, by setting aside interest income as
reserves each year.

The account has suffered massive valuation losses on its
dollar-denominated assets due to yen gains, leading to an
estimated fall of around 5-6 trillion yen in Japan's reserves,
the Nikkei said.

The government already plans to use 10.6 trillion yen of
non-tax revenue, including interest income from the forex
reserves, to balance a record 92.3 trillion yen budget for the
fiscal year from April.

Facing a plunge in tax revenue caused by the recession and
bulging social welfare costs to care for an ageing population,
the government has increasingly depended on trillions of yen in
non-tax revenue in its special accounts to make ends meet.

But it acknowledges that it has little room left to tap such
funds in future. [ID:nTOE60Q04B]
($1=90.48 Yen)
(Reporting by Tetsushi Kajimoto; Editing by Hugh Lawson)