Japan looks to become a big investor

Jeff Tyler Dec 6, 2007
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Japan looks to become a big investor

Jeff Tyler Dec 6, 2007
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KAI RYSSDAL: The dollar had another rough day. Down again against the euro and the yen. But countries that have a lot of dollars in the bank have been trying to figure out what to do with them. The latest fad is something called a sovereign wealth fund. Lots of countries have them. And now Japan has started talking about getting one together. Tokyo wants to set aside $100 billion in a state-owned investment fund to be used to buy everything from companies to commodities worldwide. Marketplace’s Jeff Tyler has that story.


JEFF TYLER: Japan has almost a trillion dollars in foreign currency reserves, mostly in dollars. And that money hasn’t been delivering much of a return.

Brad Setser: I think it’s natural that Japan would consider ways to manage its funds more aggressively.

That’s Brad Setser with the Council on Foreign Relations.

Setser: Right now, Japan is looking to get a somewhat higher return than can be obtained simply on U.S. Treasuries.

Setser says Japan isn’t alone. China, Russia and Dubai — just to name a few — are sitting on huge sovereign funds.

Setser: This is indicative of a broader trend, where countries with lots of reserves are looking for ways to increase the returns on those reserves.

Other observers agree. Ben Carliner is with the public policy think tank the Economic Strategy Institute. He says sovereign funds, and foreign investors in general, are starting to take advantage of the weak dollar to buy American.

Ben Carliner: They’re going to move out of the debt markets, where traditionally they’ve been investing in treasury bonds and other assets like that. And start buying companies.

Should we be worried? Is the government of Japan going to buy up corporate America? Carliner says the only real threat is that our interest rates could rise as the Japanese stop funding our debt. He says politicians may capitalize on fear of foreign ownership, but the problem is really the result of our huge deficits.

Carliner: If I had a message to politicians, it would be: Stop blaming foreigners for self-inflicted wounds.

Like it or not, sovereign funds are powerful players. According to Morgan Stanley, sovereign funds are expected to grow to nearly $28 trillion by 2022.

I’m Jeff Tyler for Marketplace.

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