UPDATE 1-Japan FX reserves hit record high $1.016 trln

TOKYO, April 7 (Reuters) - Japan's foreign exchange reserves,
the world's second-largest, hit a record-high $1.016 trillion at
the end of March, partly as the euro's rise against the dollar
boosted the value of euro-denominated bonds in the reserves.

Investment returns and lower U.S. interest rates that pushed
up the value of U.S. bonds held in the stockpile also offset a
fall in the value of assets held in gold, resulting in about a
0.8 percent increase in the reserves in March.

The reserves rose for the 10th straight month and set a
record high for the ninth month in a row, a finance ministry
official said.

The euro <EUR=> traded at $1.5797 at the end of March,
compared to $1.5232 at the end of February, the ministry said.

The yield on the benchmark 10-year U.S. Treasury note
<US10YT=RR> fell to 3.413 percent at the end of March from 3.513
percent a month earlier, it added.

Japan does not give currency breakdowns for its external
reserves, but past Japanese currency intervention, which has
mostly taken the form of dollar buying, suggests most of Tokyo's
foreign cash pile is in the U.S. currency.

Japan's reserves surged after the country intervened heavily
in the currency market in 2003 and early 2004 to help the economy
tackle deflation.

It sold a total of 35 trillion yen ($344 billion) for dollars
in the 15 months to March 2004, during which the dollar traded
between 105 and 120 yen.

Tokyo has kept out of the market since then, but income on
the reserves has kept them edging up.

The massive reserves have stirred a debate among Japanese
lawmakers about whether Japan should follow countries like China,
which holds the world's largest foreign reserves, into setting up
a sovereign wealth fund to invest some of the cash pile.

But the Ministry of Finance, which manages the reserves, is
against the idea, fearing a wealth fund will be too risky.

Finance Minister Fukushiro Nukaga told the parliament last
month that unrealised losses on Japan's $1 trillion foreign
currency reserves amount to about 18.5 trillion yen when the
dollar is around 100 yen.

The dollar traded at 99.37 yen <JPY=> at the end of March,
down from 104.34 yen a month earlier amid a fears about a U.S.
recession and a deepening credit crisis from U.S. subprime woes.
($1=101.68 Yen)
JAPAN OFFICIAL RESERVE ASSETS (in billion dollars)

END-MAR END-FEB YEAR AGO
TOTAL 1,015.587 1,007.981 908.958
To view the full tables, go to the Web site of the Ministry of
Finance here
(Reporting by Tetsushi Kajimoto)