Japan Considers Sovereign Wealth Fund to Manage $1.3 Trillion Reserves

After spending a record $73 billion to defend the yen, Japan's draft growth strategy proposes optimizing its $1.3 trillion foreign exchange reserves, potentially creating a sovereign wealth fund, while coordinating with the US to avoid diplomatic tensions.

2026-06-24T13:55:38.102Z

Japan's government has unveiled a draft strategy to boost returns on its $1.3 trillion foreign exchange reserves, just weeks after spending a record $73 billion to prop up the yen.

Between April 28 and May 27, 2026, Tokyo intervened heavily as USD/JPY surged past 160, a level now seen as a red line. The outlay, the largest since 2024, shrank reserves by 5.6% in May.

The June 24 draft growth strategy calls for optimizing the Foreign Exchange Fund Special Account, the main intervention vehicle, as part of efforts to restore fiscal health. Some lawmakers have gone further, proposing to merge reserves with Bank of Japan ETF holdings and pension assets into a sovereign wealth fund.

Finance Minister Satsuki Katayama is coordinating with US Treasury Secretary Scott Bessent to ensure the interventions do not strain diplomatic relations.

For investors, the 160 yen level remains a critical battlefield. A sovereign wealth fund combining central bank assets would become one of the world’s largest investment entities.