Japan MOF plans new section to manage fx reserves

TOKYO, Sept 5 (Reuters) - Japan’s Ministry of Finance will set up a new office within its foreign exchange market division to focus on managing the nation’s huge store of foreign exchange reserves, a ministry official said on Wednesday.

The creation of the new section is aimed at increasing the number of staff in charge of the ministry’s conservative reserves management, and does not mean Japan will start investing funds more actively in risky assets such as stocks and property.

“There would be no change to our reserves management policy,” the official said, emphasising that the ministry will continue to prioritise safety and liquidity over higher returns in managing the more than $900 billion worth of reserves, the world’s second largest after China’s.

Financial markets remain sensitive to any signs of reserves policy changes by Japan, China or other big holders of external reserves.

The ministry is requesting under the state budget for fiscal 2008/09 funds to add two new staff to an existing team of about five in charge of reserves management. Others within the foreign exchange market division may also join the new office.

If the request for new staff is met and the state budget is approved by parliament early next year, the new office will start operating around next summer, the official said.

Some lawmakers and senior government officials have called on the ministry to manage Japan’s foreign reserves more aggressively and use the proceeds to improve the nation’s fiscal situation, the worst among major industrialised nations.

The ministry, in charge of currency policy and reserves management, has dismissed such an idea and has stuck to a more conservative approach on the view that reserves should be kept safe and liquid enough to be used for possible currency intervention in the future.

It has also repeatedly denied that it would set up a new investment body to more actively manage the huge pool of reserves.

Japan’s reserves ballooned after it sold 35 trillion yen ($300 billion) over a 15-month period to March 2004 to prevent a rapid yen rise from derailing an export-led economic recovery.

Tokyo has not intervened in the market since then, but its reserves have been growing slowly partly due to interest rate income from foreign bonds and deposits in reserve holdings.