Japan’s foreign exchange reserves plunged to $1.208 trillion at the end of August, with the decline of $79.6 billion, or 6.18%, marking the largest on record. The main factor was a sharp reduction in foreign securities holdings, bringing to light the funding source for the government’s intervention to support the yen.
Japan’s foreign exchange reserves stood at $1.208 trillion at the end of August, down $79.6 billion from $1.287 trillion at the end of July. The 6.18% decline was the largest monthly decrease on record. The data quantified the cost borne by the Japanese government in seeking to stabilize the yen.
The decline in foreign exchange reserves was primarily attributable to a sharp reduction in foreign securities holdings, which fell by $87.8 billion from the previous month as of the end of August. Market participants said the scale was broadly in line with the amount of recent intervention. Japan’s Ministry of Finance announced that it conducted a total of ¥15.4 trillion in yen-buying and dollar-selling intervention between 30 July and 26 August.
Foreign securities, which account for most of the foreign exchange reserves, are believed to consist mainly of US Treasuries. The intervention was conducted by selling dollar assets to support the Japanese yen, and the effects of coordinated intervention by Japan and the United States were also observed. Markets will focus on developments surrounding expectations for a Bank of Japan rate hike in September and the implementation of the US Treasury’s expanded long-term debt buyback program.