Japan to consider tapping FX account to boost defence spending - Kyodo

Many ruling party lawmakers have voiced opposition over raising tax, a step preferred by the finance ministry, to pay for increased defence expenditure due to concern it will hurt the fragile economy. With the decision on tax likely to take time, the government will consider tapping retained earnings from the special account for foreign exchange intervention, which manages the country's foreign asset holdings, Kyodo reported.

Japan's government is considering tapping funds under an account set aside for foreign exchange intervention to pay for an expected increase in defence spending, Kyodo news agency reported on Tuesday.

The government could also issue additional bonds until a decision is made on whether to increase taxes as a long-term source of funding for the scheduled rise in military spending, Kyodo said without citing sources. Prime Minister Fumio Kishida has pledged to boost defence spending to guard against North Korea's missile launches and China's increasing military presence in the region.

He instructed his ministers on Monday to work on a plan to lift defence spending's share of gross domestic product to 2% within five years, from about 1% now, a move that would strain Japan's already tattered finances. Many ruling party lawmakers have voiced opposition over raising tax, a step preferred by the finance ministry, to pay for increased defence expenditure due to concern it will hurt the fragile economy.

With the decision on tax likely to take time, the government will consider tapping retained earnings from the special account for foreign exchange intervention, which manages the country's foreign asset holdings, Kyodo reported. The account reaps roughly 2-3.5 trillion yen ($14-25 billion) in retained earnings annually, and had been tapped in the past to fill short-falls in the general account budget, it said. ($1 = 138.7000 yen)