Japan Wants A SWF

Ashby Monk

This just in:

“Japan’s ruling party unveiled an economic stimulus plan Wednesday totaling more than $57.6 billion that also calls for Japan to consider making use of its $1.07 trillion in foreign reserves to create a sovereign wealth fund…”

And why?

The plan’s chief architect, former trade minister Masayuki Naoshima, pointed to the need to get a greater return on Japan’s overseas investments. “We are thinking of how we can better employ Japan’s foreign reserves,” he said.

I’m actually surprised this didn’t happen earlier. With over a trillion dollars in forex reserves, a SWF akin to CIC or GIC would undoubtedly help in this regard.

However, there is apparently more to this proposed SWF than just reserve diversification and boosting returns; Japan may be planning to use the new SWF to make strategic investments in the resource industry. This is, if you remember, what India was proposing (and then later rejected).

Anyway, this development has the wires buzzing. For example, here’s Alphaville’s take:

“And that, we’d submit, is how you might end up transforming currency wars into resource wars in one fell swoop…”

I’ll be very interested to see some of the information that is undoubtedly forthcoming on this new fund. In my view, a reserve investment corporation makes sense for Japan, but the real intriguing bit will be to see the specific objectives the government gives the SWF. Fascinating stuff…

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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