JPY Intraday Comment

Research evidence excerpt

JPY Intraday Comment

e report also cited a Ministry of

Finance official as saying that “it would be difficult to pursue returns in a way that runs

counter to the original purpose”, which suggests the process of reaching a final conclusion

could be far from straightforward.

Even if debate around FX reserves becomes more active, we see little likelihood

that that this would generate JPY appreciation pressure

Even if discussions on improving portfolio returns were to make progress, we basically do

not think this would materially affect JPY supply-demand dynamics. Reports suggest the

authorities may look to GPIF's asset allocation framework as a reference point, potentially

opening the door to equity holdings (an asset class not previously included in the reserve

portfolio). However, it is important to stress that this would essentially be a decision about

which asset class to deploy existing foreign currency reserves into, rather than a decision

to accumulate additional foreign assets. In other words, it would represent a reallocation

within the existing foreign currency portfolio (e.g., from bonds or deposits into equities),

not incremental selling of JPY to acquire new foreign currency. The additional JPY-selling

/ foreign currency-buying impact would therefore be negligible.

However, given the underlying motive behind these discussions appears to be finding

additional sources of budget funding, we cannot entirely rule out the possibility that the

authorities may opt to reduce the overall size of foreign reserves in order to raise JPY

cash. Should the debate on utilising the Foreign Exchange Special Account evolve in this

direction, there is a tail risk that the government could find it easier to conduct outright

foreign currency selling / JPY buying.