In a rare move, Japan sells 80 tons of gold to fill budget hole

Topics Japan | Bank of Japan | Budget

Bank of Japan. Photo: Reuters

Japan has sold 80 tons of gold used for minting coins to another arm of the government to fund part of its huge stimulus package to combat the coronavirus crisis, government officials told Reuters.

Saddled with public debt twice the size of its economy and tax revenues hit by the pandemic-induced recession, the finance ministry is under pressure to find non-tax revenues to cover the rising cost of spending to deal with the health crisis.

The ministry usually taps reserves set aside as special accounts, and profits the Bank of Japan and other agencies return to state coffers after they close their annual books.

This time, the ministry resorted to a rare arrangement involving the central bank.

Under the move, the ministry's division in charge of international affairs sold a portion of dollar reserves to the BOJ. With the yen it received, the division bought gold from another division of the ministry in charge of debt management.

From the gold sale, the division in charge of debt management gained proceeds worth 500 billion yen ($4.84 billion) that would be used to finance a new fund aimed at boosting research and development at universities, two officials told Reuters on condition of anonymity as they were not authorised to speak publicly.

The BOJ announced on Wednesday it would buy dollars from the ministry as a precaution against any market disruptions caused by the pandemic.

But some analysts say the arrangement may have been initiated by the finance ministry, which wanted to avoid issuing too much debt or using taxpayers' money for the fund.

"From the standpoint of fiscal consolidation, this deal may be described as effective use of state property," said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities.

"It sounds reasonable for the BOJ to top up dollar funds. But it was probably the government, not the BOJ, that pulled the trigger in hope of securing money for the university fund."

One of the government officials said the budget allocation for the university fund was a consequence, not the key purpose, of the arrangement.

Another official said the ministry's response to the BOJ's dollar funding was exceptional, declining to comment further.

The deal highlights the difficulty of managing the industrial world's heaviest public debt burden, which snowballed after heavy stimulus spending in the past two decades.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel