Bloomberg.com: Worldwide

Bloomberg.com: Worldwide: "Japan Should Create $33 Billion Sovereign Wealth Fund, Ito Says

By Ron Harui and Liza Lin

July 10 (Bloomberg) -- Japan should start a sovereign wealth fund with about $33 billion in assets, using interest earned on its $1 trillion of foreign reserves, said Takatoshi Ito, a member of a government advisory committee.

The fund would invest in higher-yielding assets overseas including equities, Ito said in a Bloomberg Television interview in Singapore. It needs to be set up ``as soon as possible'' to avoid exchange-rate fluctuations that may hurt the nation's reserves, he added.

The value of the $592 billion that Japanese investors, including the government, hold in U.S. Treasuries has been eroded in the past 12 months by the dollar's 12 percent drop against the yen. Ito, a member of Prime Minister Yasuo Fukuda's key economic panel, has scaled back his plan since suggesting a $700 billion fund a year ago because of opposition from the Ministry of Finance.

``My proposal is to take interest income separate from foreign reserves, accumulate it and manage it more actively,'' Ito said. ``The reserves are very exposed to currency and interest-rate risks in the future, so this is not desirable.''

He estimates that the government receives interest payments of about 3.5 trillion yen ($33 billion) a year on"