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Japan aims to improve forex reserves management with help of private sector

Japan's Finance Minister Taro Aso speaks during a semi-annual parliament hearing on monetary policy at the Lower House of the parliament in Tokyo June 19, 2013. REUTERS/Issei Kato

TOKYO (Reuters) - Japan's government endorsed a plan on Friday to allow private sector funds and trust banks to manage a part of its $1.27-trillion (782.45 billion pounds) of foreign exchange reserves with the aim of improving its returns from the vast pool of funds.

The decision was made as part of the government's plan to streamline its special accounts, or massive budget reserves set aside from its general-account budget, to be used for specific purposes such as foreign reserves management.

The government has managed the foreign reserves by itself, but its ability to do so has been stretched as the reserves roughly doubled over the past decade after heavy yen-selling interventions to stem the currency's gains to back exporters.

Finance Minister Taro Aso said the government would stick to its stance of attaching the utmost importance to ensuring safety and liquidity of the reserves, suggesting the move is not a departure from its practice of investing the bulk of its reserves in U.S. Treasuries and other high-grade investment bonds.

"There's a chance revenues (from reserves management) may rise if private-sector experts manage some of the reserves, rather than government bureaucrats not used to handling money," Aso told reporters after a cabinet meeting on Friday.

"Within scope of this limit, we'll pursue profitability," Aso said, adding that the government will now discuss how much of the reserves management should be allocated to private sector funds.

The government plans to submit relevant legislation to the parliament during its ongoing session that runs until December 6, aiming to implement revisions to the current law next April.

Under the current law, the government is restricted to lending its foreign securities only to banks, but the revised law would also allow brokerages to borrow securities, with the fees borrowers pay going to replenish government coffers.

Investors say the plan won't have an impact on the foreign exchange market as the government is unlikely to change the currency make-up in the dollar-dominated reserves significantly.

Japan is the world's second-largest holder of foreign currency reserves after China, which held about $3 trillion by August, according to data by the International Monetary Fund.

(Reporting by Tetsushi Kajimoto and Leika Kihara; Editing by Kim Coghill)