Reports indicate that the Takaichi administration is considering using funds from the Foreign Exchange Special Account to fund a consumption tax cut. However, under current law, foreign exchange gains from the account cannot be allocated directly to general revenues, raising the possibility that a legislative amendment would be required. Many believe the funds would be temporary in nature rather than a permanent source of revenue. The feasibility of securing funding will depend heavily on the surplus trend and how reserves are treated.
The government and ruling parties are considering using funds from the Foreign Exchange Special Account to fund a consumption tax cut. However, under the current legal framework, foreign exchange gains cannot be allocated to the account’s surplus. A legislative amendment could make the funds available, but some believe they would be temporary rather than a permanent source of revenue.
Two approaches have been identified in discussions of how to convert foreign exchange gains into general revenues. The first would apply realized foreign exchange gains to redemptions as before, then issue an equivalent amount of short-term government bonds to secure general revenues. The second would amend the law to allow foreign exchange gains to be recorded as surplus. The first approach is considered realistic, although its consistency with the policy of not using deficit-financing bonds could be questioned.
The surplus is expected to decline from FY2027 onward, and even if the rule requiring 30% of the Foreign Exchange Special Account to be set aside as a reserve were temporarily suspended, the amount that could be transferred to the general account would be limited. Against a backdrop of expected declines in current operating income and the risk of yen depreciation, views are strengthening that it would be difficult to establish a long-term source of revenue. The appropriateness of using the sale of foreign-currency reserves as a source of funding also requires careful assessment.