There is increasing evidence that the U.S. credit crunch is beginning to severely hamper not only US, but global economic growth, as institution after institution continues to trim back their economic growth forecasts. Judging merely from the public reaction of Japan’s monetary and political authorities, one sometimes wonders if anyone is awake in Japan (i.e., realizes the true import of the credit crisis in the US).
But a small group of LDP politicians do continue to push hard for timely and resolute action to stimulate Japan’s economy, including the introduction of a Japanese sovereign wealth fund. The debate has ratcheted up the next level with the establishment of a special team within the government’s National Strategy Headquarters to investigate more active management of Japan’s $996 billion in foreign exchange reserves and public pension funds to generate investment returns that can be used to restructure Japan’s public finances.
Like other Asian SWFs, Japan’s forex reserves are based on financial resources raised through the issuance of special government bonds, which creates a hurdle rate that needs to be met, much like China’s new CIC.
The current idea is to hire about 10 world-class fund managers to manage the profits generated from current management of Japan’s forex reserves (over JPY3 trillion ), and not withdrawing significant amounts of Japan’s forex reserves that are currently being invested in US treasuries. Press reports indicate that the Japanese government has talked with Middle Eastern SWFs for pointers on how to set up such a fund.
Meanwhile oil exporter and Asian SWFs like ADIA (Abu Dhabi), SAMA (Saudi Arabia), KIA (Kuwait), Sultanate of Oman, GIC Asset (Singapore) and Brunei continue to expand their portfolio investments in Japan, while China’s CIC, Qatar’s and now Russia’s SWF are also looking for selected Japan investments, and private equity funds such as Dubai International Capital are also on the hunt for selected technologies and/or global franchises. This, with soaring commodity prices, has helped selected shipping, mining and trading company stocks to rally 30%~40% from January lows.