Japan's Forex Fund Special Account Eyed for Tax Cut Funding

The account holds as its assets the foreign exchange reserves with huge investment returns from past yen-selling, dollar-buying market interventions and unrealised gains from a weak yen.

It has often been referred to as an untapped resource, but utilising the funds involves some problems and is therefore considered difficult.

The account was established to conduct currency market interventions to address volatile exchange rate fluctuations.

The total amount of the external reserves stood at 1,369.7 billion dollars as of the end of 2025, mostly held as US government bonds.

The surplus in the special account stood at a record high of 5,360.3 billion yen at the end of fiscal 2024, reflecting higher investment returns, or interest income from foreign currency assets minus interest payments on yen-denominated debts, due to the weak yen.

The government procures yen funds for dollar-buying operations by borrowing the Japanese currency from the market by issuing financing bills.

In pledges to voters for Sunday's election for the House of Representatives, the lower chamber of Japan's parliament, the opposition Democratic Party for the People has proposed using the special account as a financial resource for proactive fiscal policy measures.

Prime Minister Sanae Takaichi, who heads the ruling Liberal Democratic Party, also mentioned the special account in a stump speech Saturday, saying that the account is gaining huge investment profits thanks to the weaker yen.

Under the current rules, up to 70 per cent of the special account surplus can be transferred to the government's general account.

But the surplus is unlikely to serve as a major source of funding, as it is already used to make up for annual revenue shortfalls.

"The government needs to secure financial resources if it is going to continue cutting taxes," a senior official of an economy-related government agency said.

"Using the special account without doing so would be a moral hazard."

Some have called for utilizing unrealized gains from the increase in the yen-denominated value of foreign currency assets held under the special account, fueled by the yen's depreciation.

Of the roughly 80 trillion yen in net assets under the special account in fiscal 2024, about 50 trillion yen resulted from foreign exchange gains.

However, utilising this would require the sale of assets such as foreign government bonds and converting the profit into yen.

This would effectively be a market intervention, and the sale of foreign bonds may disrupt bond trading.

The move will also likely draw the ire of the US government, and gaining Washington's consent would be difficult.

"Unrealised gains in the foreign exchange reserves, which expanded because of the weaker yen, are 'long-buried treasure' that can never be used," said Takahide Kiuchi, executive economist at Nomura Research Institute Ltd.

[Copyright The Jiji Press, Ltd.]