Canadian Investment Review

Japan: An SWF Take Down

Written by Ashby Monk on Tuesday, January 4th, 2011 at 12:02 pm

356380_sumo_throwing_saltI see that while I was off on vacation (…sigh…vacation was so awesome…), there were some interesting new developments surrounding Japan’s potential new SWF. As I noted back in October, Japanese policymakers were considering deploying some of the country’s $1.4 trillion forex stockpile in a new fund to further Japan’s strategic economic objectives, such as securing natural resources. But it now looks as if the new SWF is moving down quite a circuitous path.

According to an article in the WSJ by Chester Dawson, the Japan Bank for International Cooperation (JBIC) will be remodeled and restructured to facilitate investment by Japanese entities overseas. Is the JBIC being converted into a SWF, you ask? Some seem to think so. Here’s Dawson:

“Some observers say the efforts to beef up JBIC’s role, taken together, suggest Japan may be moving in the direction of eventually creating a sovereign-wealth fund, a kind of government-funded vehicle that—unlike JBIC—takes direct investment stakes…. One October policy draft from Japan’s governing party specifically called for upgrading JBIC’s role while “the establishment of a ‘national wealth fund’ is studied.” But the idea was ultimately dropped from an emergency spending package passed later that month. Now, it appears to be back on the legislative agenda for 2011.

I think we can safely say that JBIC is not a SWF. And while the article suggests that restructuring this entity foreshadows a future Japanese SWF, I’m not so sure. It may actually supplant the need for such a fund. Why? The Minister of Finance—who has oversight of the JBIC—is firmly against a new SWF, as it would mean removing some portion of the forex reserves from the MoF’s purview. As such, it seems more likely that the JBIC restructuring is a pre-emptive move designed to pull the rug from underneath SWF supporters and not a step in the SWF direction. While I accept that Japanese political dealing defies my comprehension, this seems like an SWF takedown.

This post originally appeared on the Oxford SWF Project website.

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